The good news: Alesco Financial (AFN) maintained its dividend at $0.25/share for the second quarter.
The bad news: How more dividends will be declared if Alesco terminates its REIT status?
Alesco announced today that it was declaring a Q2 dividend of $0.25 per common share. However, James McEntee, President and CEO of Alesco Financial, cautioned, "Our REIT taxable income to date supports the payment of a $0.25 dividend per share for the quarter. AFN is continuing to review strategic alternatives for the company, including whether to continue to maintain its REIT qualification. Any change in strategy or operating results could impact the level of future dividend payments."
With the Kleros CDOs moving closer and closer to liquidation, it is likely that Alesco will remain a REIT for 2008, but will convert to a publicly-traded partnership (PTP) for 2009 and beyond. Alesco's money-making bank and insurance TruPS portfolios are not qualifying REIT assets, and with the lowered spread available on RMBS (limited repo lines available makes it difficult to lever up RMBS to profitability), it makes sense that the Company will end its run as a REIT.
The bad news: How more dividends will be declared if Alesco terminates its REIT status?
Alesco announced today that it was declaring a Q2 dividend of $0.25 per common share. However, James McEntee, President and CEO of Alesco Financial, cautioned, "Our REIT taxable income to date supports the payment of a $0.25 dividend per share for the quarter. AFN is continuing to review strategic alternatives for the company, including whether to continue to maintain its REIT qualification. Any change in strategy or operating results could impact the level of future dividend payments."
With the Kleros CDOs moving closer and closer to liquidation, it is likely that Alesco will remain a REIT for 2008, but will convert to a publicly-traded partnership (PTP) for 2009 and beyond. Alesco's money-making bank and insurance TruPS portfolios are not qualifying REIT assets, and with the lowered spread available on RMBS (limited repo lines available makes it difficult to lever up RMBS to profitability), it makes sense that the Company will end its run as a REIT.
5 comments:
Thanks Mr. Harden. I just discovered your blog and appreciate your information.
I have been bottom feeding on some REITs of late just picked up SFI for $17.00 yesterday. My other recent buys are DFR, RPT, BRT, & CBF. I am trying to stay away from mREITs, but SFI and DFR are too tempting at these prices.
I have low limit orders in on PCC, MPW, BDM & MDH. I hope that the Fed raising rates don't hurt these companies too much, but they have to do it.
I, too, offer my appreciation for your helpful and insightful columns.
As a shareholder in Alesco Financial, I wonder what your feeling is about the company becoming a C Corporation, as opposed to a REIT.
Do you think it is a good thing, a negative, or neither?
Thank you.
I think that Alesco Financial would be well-suited to the publicly-traded partnership structure. The structure is still tax-advantaged and allows Alesco to invest in non-qualifying REIT assets, such as insurance company and bank holding company TruPS. Dividends will be at the discretion of the Board, but tend to remain high and can be adjusted quickly to preserve liquidity when necessary. Alesco could also expand its hedging strategies through CDS purchases -- which might otherwise not work within the REIT constraints.
Hi Patrick, what do you think about the distress that local small/banks are seeing in their CRE loans to developers? The WSJ reported today that some analysts project 150 bank failures in the next few years. Many of these institutions issued TruPs, and many of these were bought by AFN without much discretion.
Alesco's TruPs portfolio performance has been abysmal. Despite thousands of banks and thrits out there, Alesco selected 300 or so for investment, and somewhow it now owns 6 of the 12 deals that have defered or defaulted, which is a flake factor of 50%!!
I replied to your SFI comment on my site earlier; I hope your blogging is not taking too much time. Your Mortgage REIT Journal is a great source of information.
Thanks, RW
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