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!