Crystal River's Dividend Washing Away

Update: Crystal River provided no significant information on the conference call regarding its future. The Company was downgraded by Wachovia this morning, but at under $6/share with a potential $0.25/share dividend going forward, it's looking really cheap.

Crystal River Capital (CRZ) released first-quarter earnings after the bell Monday, and the news was worse than expected. Despite posting better than expected net investment income of $0.99/share and operating earnings of $0.81/share, Crystal River disclosed that it had sold its agency MBS portfolio during March and April -- and that the agency portfolio had been contributing half of Crystal River's REIT taxable income. Shares tumbled 11% after-hours on the expected dividend cut and dismal forecast.

Taxable income came in at just $0.63/share for the first quarter, $0.05 short of the first quarter. With the agency portfolio sold, I expect CRZ to generate just $0.30/share of quarterly taxable income going forward. I expect the Company to cut the dividend to just $0.25/share for the remainder of 2008.

Crystal River said in a press release that "[a]s a result of the challenging market conditions for structured real estate securities and financing in general, which are expected to persist for some time, Crystal River's Board has been evaluating the Company's current investment strategy."

Separately, CRZ announced that its Board of Directors had appointed William Powell as its President and Chief Executive Officer (CEO), effective Tuesday, May 13, 2008. Powell joins Crystal River from his former position as co-head of Brookfield Asset Management's Real Estate Finance Funds Group, a possible sign that Brookfield may simply fold Crystal River back into its portfolio -- much like Hypo AG did with Quadra Realty several months ago.