Arbor Axes Dividend

It was just under a month ago that commercial mREIT bellweather iStar Financial (SFI) decided to skip its third-quarter dividend and pay out the remainder of its 2008 taxable income as a fourth-quarter dividend. A couple weeks later, competitor RAIT Financial cut its dividend from $0.46/share to just $0.35/share. Now, it's Arbor's turn to take out the axe. Arbor Realty Trust, a New York-based commercial loan originator, sliced its dividend from $0.62/share to just $0.24/share for the third quarter and warned that it will not pay a fourth-quarter dividend at all.

Arbor explained the cut in the dividend thusly:

This [third quarter] dividend represents the estimated balance needed to distribute 100% of the Company's taxable income for 2008. Taxable income is expected to be less than the Company originally anticipated, primarily due to tax differences associated with certain of the Company's unconsolidated equity investments.

In recent years, the Company has paid out more than 100% of taxable income and, where possible, the Company has sought to maintain a consistent and recurring dividend. For 2008 and for the immediate future, the Company expects to limit dividends to 100% of taxable income. This decision reflects the continued difficult economic environment and the need to focus on capital retention.

All eyes now turn to competitors like Capital Trust (CT) and Anthracite Capital (AHR), who have already declared their third-quarter dividends. Will these two mighty players in the commercial mREIT arena see their dividends decimated in the fourth quarter of 2008?

Blog Notes

As a result of my continued efforts to work with the good folks at Housing Wire, I will no longer be posting on a frequent basis at this blog site. I will continue to contribute to Seeking Alpha on an occasional basis, but the bulk of my efforts are going to be concentrated on my weekly Friday column at HW. I appreciate those who enjoy my posts; please check back from time to time, as I will post occasionally as time permits. Additionally, I'm always available to reply to media inquiries about mortgage REITs via email at patrick1980sc@gmail.com.

MREITs Shafted by SEC

So the SEC is going on a tirade against short-selling after public pressure forced them to do something. So exactly how and why were the 799 financial firms selected for the temporary short-selling prohibition chosen? Granted, most of the companies on the list on bank holding companies, which makes sense. However, there were a few oddball choices, such as Apollo Investment Corp. (AINV), which is a business development company, and FBR Capital Markets (FBCM). None of the mortgage REITs, which are vital to loan origination in the primary market and a significant source of purchases in the secondary market, made the list. Aren't these financial firms as well with "frozen" assets on the balance sheet? While it's true that taxpayers aren't on the hook if an mREIT goes under, taxpayers aren't on the hook if Goldman Sachs (GS), Morgan Stanley (MS), or FBCM goes under either.

If public interest demands that we curb short-selling (a dubious proposition in itself, but that's a separate rant), we should extend the ban to all publicly-traded companies. Let's just artifically prop up everyone's stock price.

Monday mREIT Madness

First of all, I apologize for not updating this blog in a few (okay, several) days, but honestly, the flow of news from the mREIT sector had slowed to a trickle. Tumbleweeds were blowing through. Then the Treasury bails out the GSEs and the dam broke loose! Let's do a point-by-point review of today's delicious mREIT drama:

1. The bull market is back for the agency mREITs. Credit Suisse bumped Annaly Capital (NLY) and Anworth Mortgage (ANH) to outperform, citing the removal of "GSE overhang" and removal of supply/demand imbalances in the MBS market. Bose George over at Keefe Bruyette reiterated his outperform rating on the entire agency mREIT sector. Stocks in the sector rose sharply, by an average of 10%.


2. Luminent (LUMCE.OB) finally ended the suspense and filed Chapter 11 bankruptcy. Arco Capital, which had previously extended a warehouse line to Luminent after it collapsed last August, has agreed to provide debtor-in-possession financing in exchange for a stake in the reorganized companies.


3. The boring dividend declarations: Annaly declared a dividend of $0.55/share, which indicates flat third-quarter results and an increased share count. PMC Commercial Trust (PMC) declared a dividend of $0.225/share, consistent with the prior quarter. I expect PMC to declare a special dividend at the end of the year, as it has a significant amount of undistributed taxable income through the first half of 2008.


4. The juicy dividend declarations: CapitalSource (CSE) cut its dividend to just $0.05/share, which it characterized as more in line with commercial depositories. CSE had warned of an impending dividend cut for a while, but investors seemed shocked by the severity of the decline. Shares tanked $2.09 (-16%) after the bell. BRT Realty Trust (BRT) declared a regular quarterly dividend of $0.62/share and a special dividend of $0.71/share, completing the distribution of its 2007 taxable income. However, I got to enjoy a satisfying I told you so! moment when BRT admitted that "we expect that our taxable income in 2008 will be substantially reduced and that we could possibly report a taxable loss for the year...we anticipate that the quarterly cash dividends in 2009, commencing with the dividend payable in January, 2009, will be at a substantially reduced rate." Duh, you can't use portfolio liquidation as a sustainable dividend strategy.

So there you have it. Agencies rocked, Luminent got clocked, CapitalSource got socked and BRT shocked. Stay tuned for more mortgage REIT madness!

ECC's Dividend Nearly Double Stock Price

Crashed subprime REIT ECC Capital (ECRO.PK) had a surprise of its own Monday night -- it's making a cash distribution of $0.16/share, despite having a common stock price of $0.096/share. The dividend is almost double the common stock price! Obviously the price of the common will rise in response, but what happens to the share price when the stock goes ex-dividend?