[Hatteras shares are] trading at just over one times book value... We [Jacobs' fund managers] estimate that they will earn $4.50 to $4.75 a share from mid-year '08 to mid-year '09, once the IPO proceeds are invested. As a REIT, they will pay out all -- or nearly all -- of their earnings in dividends. So at 25 recently, the stock was sporting an expected yield of around 19%. We think the stock gets to 30 at least. Between the appreciation and the yield, it's a great total return.
Tuesday, May 27, 2008
Saturday, May 24, 2008
Wednesday, May 14, 2008
Mortgage REIT Journal will begin covering the stock tomorrow. AGNC joins Hatteras Financial (HTS) as the newest agency mREITs on the block.
Monday, May 12, 2008
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.
The disclosure sent Alesco shares reeling and prompted the Company to issue a statement quantifying the impact of the IMB non-payment. AFN admitted that that IMB's deferral will trigger the over-collateralization tests in five of the eight CDOs for a period of time. Failing the O/C tests will cut Alesco off from the cash flow from these CDOs, although AFN will still record the interest income (as it is doing with the Kleros CDOs).
AFN claims it could maintain its current dividend stream despite the O/C test failures, but cautions that "[the Company] is reviewing a number of strategies for the company, including whether to continue to maintain its REIT qualification. Any change in strategy could impact the level of future dividend payments."
Perhaps Alesco can withstand one deferral, but if another IndyMac situation arises (and one has to believe it will), Alesco's CDO machine will overheat and crash.
Saturday, May 10, 2008
Before I get into the first quarter earnings, let's take a look at PMC's business model. The Company that primarily originates first-lien, real estate-collateralized loans to small businesses, primarily in the limited service hospitality industry. PMC has two subsidiaries that act as non-bank Small Business Administration 7(a) Program lenders, which means that the Company is able to originate loans that are guaranteed up to 75% by the SBA. It also means that portions of 7(a) loans guaranteed by the agency can be transformed into AAA rated government bonds and sold on the secondary market.
Obviously, in the current economic environment, PMC's business would be expected to decline, so secular pressure on the stock is not surprising. PMC's fundamentals, however, are telling a different tale.
PMC is a small-cap stock and thinly traded, so buyers beware. For those with some money to play with, however, this stock could prove to be an untapped gold mine.
Thursday, May 8, 2008
Tuesday, May 6, 2008
Second, I was actually very pleased with the adjusted earnings performance of the business at $0.51 per share for the quarter, particularly since we recognized $0.09 in quarterly adjusted earnings loss, related to the reduction of our agency portfolio by over $600 million. We have continued to reduce our agency portfolio, and today it stands at about $1.6 billion, down from its peak of about $4 billion.
The reason for this reduction is simple. We didn't need as many agencies for recompliance, and we elected to reduce the portfolio, not because we had to, but simply because we could, and it resulted in a dramatic reduction in any funding risk against this portfolio.
More like, we don't like agencies, we don't know to manage them, we just have to have them. Just ignore them and focus on our better lines of business.
The $0.07 beat on adjusted earnings and $7 million beat in investment revenue lifted the stock powerfully today. It was a roaring 22% day for RAIT, who definitely deserves some love, trading far below its economic book value.
However, my skeptical eye couldn't hope but notice at the very end of press release, RAIT acknowledged that:
During the three-months ended March 31, 2008, we revised our definition of
adjusted earnings to exclude 32,056k in capital losses [enough that the losses
had to be added back to show operating earnings.] Capital losses, while economic
losses, do not currently impact operating performance or dividend paying
This is true, but RAIT did rely on a net capital gain distribution when it announced the tax treatment of its 2007 dividends.
One another note, then back to the RAIT party. Former REIT NovaStar had placed it trust preferred securities in two Taberna investment securities. NovaStar can no longer make the preferred payment. Taberna and NovaStar have worked out a forbearance agreement until May 30, but the value in those TruPS is long gone.
Disclosure: I'm long shares of RAS.