New York Mortgage Trust: Nascent Again

New York Mortgage Trust (NYMT) is nascent once more. After a rocky first quarter, the Company appears to have righted the ship during Q2, relisting on a major exchange (NASDAQ), upping earnings guidance, boosting the dividend, and significantly reducing delinquencies / REOs.

The Company posted a press release earlier today that declared a split-adjusted dividend of $0.16/share, up from the $0.12/share dividend in Q1. While still likely to be a return of capital, the cash flow is certainly there to support the dividend. I would rather see management buyback stock and utilize the available tax losses with the free cash flow, but the dividend payment does give the stock a floor and rewards very patient shareholders.

Most importantly, the Company resolved approximately $4.3 million in REO properties and approximately $4.9 million in loans greater than 60 days delinquent held in securitization trusts. As of June 30, 2008, the Company had 1.18% of loans greater than 60 days delinquent and 0.13% in REO properties as compared to 1.82% and 1.21% as of March 31, 2008, respectively. This kind of performance shows meaningful operating improvement and a continued turnaround.

Wednesday's Trading Talk

Lots of technical issues affecting this week's trading as well as the Fed announcement today.

On the fundamental end, the Fed comments today will most strongly influence the agency mREITs. If the Fed appears more aggressive about the need to raise rates, there will be downward pressure on the agency mREITs.

Compounding the downward pressure on the agency mREITs is the fact that Annaly Capital (NLY) went ex-dividend today, Capstead Mortgage (CMO) goes ex-dividend tomorrow, and Hatteras Financial (HTS) goes ex-dividend tomorrow.

Several other mREITs are going ex-dividend tomorrow, including JER Investors Trust (JRT), Gramercy Capital (GKK), Capital Trust (CT), PMC Commercial Trust (PCC), Crystal River Capital (CRZ), Resource Capital (RSO), and CBRE Realty Finance (CBF).

Since I've being watching mREITs, they tend to drop somewhat following their ex-dividend dates by more than the amount of the dividend. If your tax situation is such that you'd prefer capital appreciation than income, you may want to sell the dividend today.

Also, don't forget about the effects of the Russell rebalancing. There was quite a bit of downward pressure on high volume in trading of Impac Mortgage Holdings (IMH), Deerfield Capital (DFR), and Alesco Financial (AFN) shares yesterday. All three stocks are being deleted from the Russell 3000 on Friday.

CapitalSource Finally Gets a Clue

A few months ago, I suggested that CapitalSource's (CSE) operational execution was being hindered by its overly broad SuperREIT structure.

At that time, it seemed pretty obvious to me that CapitalSource could unlock significant value by selling off its poorly performing residential mortgage portfolio, spinning off its profitable healthcare net lease REIT as a separate entity, and restructuring its corporate loan portfolio as a BDC.

I wasn't surprised, then, when CapitalSource announced some strategic changes in the wake of the Fremont bank purchase.

Closing the asset acquisition and commencing the operations of CapitalSource Bank may have other strategic implications for us in light of current market conditions.

1. Dividend Policy. As previously announced, we declared a $0.60 dividend for the second quarter of 2008, payable on or about June 30 to our stockholders of record on June 16. Upon the closing of the asset acquisition from FIL, we expect to reevaluate our dividend policy and may decide to retain a
   majority of our earnings, consistent with dividend policies of other commercial depository institutions, to redeploy in attractive lending opportunities, subject to satisfying our minimum distribution requirements to qualify as a REIT for 2008.
   
2. Possible Healthcare Net Lease Transaction. With our focus on our commercial lending activities, we expect to continue to explore ways to monetize our investment in our healthcare net lease assets, including a possible initial public offering of the common shares of an entity holding these assets.
   
3. REIT Status. We intend to qualify to be taxed as a REIT for 2008, which may require us to acquire a significant amount of additional residential mortgage or other real estate assets due to the addition of the assets and operations of CapitalSource Bank to those of our existing taxable REIT subsidiaries. As we assess the impact of a depository franchise on our overall business operations, we intend to reexamine the strategic rationale for our REIT election, and we may determine not to elect to qualify as a REIT beginning in 2009 or thereafter.

So perhaps CapitalSource has gotten a clue. It wasn't maximizing the REIT structure, failing to properly manage its agency portfolio and making most of its profit in its corporate loan TRS. Perhaps the new CapitalSource will be able to improve GAAP earnings by focusing on the commercial financing business as a C-corp and utilizing cheap depository funding.

In any case, the implication for CSE shareholders is that the Company will be transforming from an income stock to a growth stock by the end of 2008. Look for CSE to sell of its agency portfolio early in 2009 and also spinoff its healthcare net lease portfolio shortly thereafter.

Mortgage REIT Insider: June 20, 2008

It's Friday, or as I like to call it, heaven.

I've got another Mortgage REIT Insider posted at fellow blog Housing Wire.

Covered in this week's edition:

• CapitalSource (CSE) takes it to the bank
• Thornburg Mortgage (TMA) is still a wreck
• Dividends, dividends, dividends!
• MORE agency mREITs on tap
• Russell rebalances will weigh on next week

Russell Rebalancing and mREITs

In order to maintain true representation of global equity markets and avoid capitalization and style slippage, Russell annually rebalances the entire Russell family of indexes.

Annual reconstitution ensures that the indexes reflect the changes in the market over time and accurately represent the true opportunity set of institutional managers. Russell's U.S. and Global index families reconstitute simultaneously. On the last trading day in May, Russell ranks the 4,000 largest U.S. stocks by market capitalization. (These are the stocks included in the Russell 3000 and the Russell Microcap.)

The 2008 reconstitution of the Russell Indexes will take place after the market close on June 27, 2008.

Typically the annual Russell rebalancing creates huge up and down swings at the close of trading on the day of the rebalancing, as Russell index trackers chase the added stocks and dump the deleted stocks. Here's the rundown on stocks to watch in the mREIT universe:

Stocks Being Added (Likely Near-Term Price Boost)

American Capital Agency (AGNC) - Added to the Russell 3000, Russell Microcap, Russell Global

Capstead Mortgage (CMO) - Added to the Russell 3000, Russell Global (Deleted from the Russell Microcap)

FBR Group (FBR) - Added to the Russell Microcap

Hatteras Financial (HTS) - Added to the Russell 3000, Russell Global

Stocks Being Deleted (Likely Near-Term Price Pressure)

Alesco Financial (AFN) - Deleted from the Russell 3000, Russell Global

American Mortgage Acceptance (AMC) - Deleted from the Russell Microcap

BRT Realty Trust (BRT) - Deleted from the Russell 3000, Russell Global

Capital Trust (CT) - Deleted from the Russell Microcap

CBRE Realty Finance (CBF) - Deleted from the Russell 3000, Russell Global

Crystal River Capital (CRZ) - Deleted from the Russell 3000, Russell Global

Deerfield Capital (DFR) - Deleted from the Russell 3000, Russell Global

Impac Mortgage Holdings (IMH) - Deleted from the Russell 3000, Russell Global

MFA Mortgage (MFA) - Deleted from the Russell Microcap

Thornburg Mortgage (TMA) - Deleted from the Russell 3000, Russell Global

Dishing Out Dividends

A number of the mortgage REITs have recently declared their second quarter dividends. Here's a summary for those of you keeping track:

1. Newcastle Investment (NCT) declared a second quarter dividend of $0.25/share, unchanged from the prior quarter. The ex-dividend date is July 2 and the payout date is July 30.
   
2. Capstead Mortgage (CMO) declared a second quarter dividend of $0.59/share, up $0.07 from the prior quarter. The ex-dividend date is June 26 and the payout date is July 21.
   
3. BRT Realty Trust (BRT) declared a second quarter dividend of $0.62/share, unchanged from the prior quarter. The ex-dividend date is June 23 and the payout date is July 7.
   
4. JER Investors Trust (JRT) declared a second quarter dividend of $0.30/share, unchanged from the prior quarter. The ex-dividend date is June 26 and the payout date is July 31.
   
5. Gramercy Capital (GKK) declared a second quarter dividend of $0.63/share, unchanged from the prior quarter. The ex-dividend date is June 26 and the payout date is July 15.
   
6. Alesco Financial (AFN) declared a second quarter dividend of $0.25/share, unchanged from the prior quarter. The ex-dividend date is June 18 and the payout date is July 10.
   
7. Capital Trust (CT) declared a second quarter dividend of $0.80/share, unchanged from the prior quarter. The ex-dividend date is June 26 and the payout date is July 16.
   
8. PMC Commercial Trust (PCC) declared a second quarter dividend of $0.225/share, up $0.025 from the prior quarter. The ex-dividend date is June 26 and the payout date is July 9.
   
9. Crystal River Capital (CRZ) declared a second quarter dividend of $0.30/share, down $0.38 from the prior quarter. The ex-dividend date is June 26 and the payout date is July 28.
   
10. Annaly Capital (NLY) declared a second quarter dividend of $0.55/share, up $0.07 from the prior quarter. The ex-dividend date is June 25 and the payout date is July 29.
    
11. Resource Capital Corp. (RSO) declared a second quarter dividend of $0.41/share, unchanged from the prior quarter. The ex-dividend date is June 26 and the payout date is July 28.
    
12. Hatteras Financial (HTS) declared a second quarter dividend of $0.75/share, its first dividend as a public company. The ex-dividend date is June 26 and the payout date is July 25.
    
13. American Capital Agency (AGNC) declared a second quarter dividend of $0.31/share, its first dividend as a public company. The ex-dividend date is June 30 and the payout date is July 29.
    
14. CBRE Realty Finance (CBF) declared a second quarter dividend of $0.10/share, down $0.05 from the prior quarter. The ex-dividend date is June 26 and the payout date is July 17.
    
15. New York Mortgage Trust (NYMT) declared a second quarter dividend of $0.16/share, up $0.04 (split-adjusted) from the prior quarter. The ex-dividend date is July 8 and the payout date is July 25.
    
16. iStar Financial (SFI) declared a second quarter dividend of $0.87/share, unchanged from the prior quarter. The ex-dividend date is July 11 and the payout date is July 31.
    
17. RAIT Financial (RAS) declared a second quarter dividend of $0.46/share, unchanged from the prior quarter. The ex-dividend date is July 14 and the payout date is August 12.
    
18. MFA Mortgage (MFA) declared a second quarter dividend of $0.20/share, up $0.02 from the prior quarter. The ex-dividend date is July 10 and the payout date is July 31.
    

Mortgage REIT Insider: June 13, 2008

It's Friday, which means yours truly has another edition of Mortgage REIT Insider posted at fellow blog Housing Wire. Covered in this week's edition:

• Commercial mREITs got clobbered this week
• Agency mREITs didn't fare much better
• Thornburg's woes reach a fevered pitch during a testy earnings call
  
  

Annaly Downgrade: Too Early in the Cycle?

Shares of Annaly Capital (NLY) are slipping in early trade this morning after JPMorgan analyst Andrew Wessel downgraded the real estate investment trust on valuation.

Wessel downgraded the stock to "Neutral" from "Overweight," and said the stock has recovered to a fair value over the last few months. Wessel thinks the Federal Reserve is going to raise interest rates later this year, which would increase Annaly's expenses and reduce its profits.

Fair enough. But Annaly withstood seven straight quarter-point increases in the federal funds rate during 2004-2005 before the dividend was materially impacted. Furthermore, Annaly is quite efficient at using 2-year swaps to lock in its funding costs, so the mere threat of future rate increases will have no near-term impact on the Company's results.

If one thinks of Annaly's cycle of results as a U-shaped curve, then perhaps we've hit the top of the curve and will be coasting downward for the next few quarters. However, there is still a long way to go before Annaly hits the ground -- and plenty of time to enjoy juicy dividends before the tightening ends the ride.

At $16/share, Annaly's forward dividend yield will approach 12%. Investors with an eye towards income versus capital appreciation might be interested in coasting down with Annaly in the near-term.

Alesco Declares Dividend, Doubt

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.

Tough Fed Talk Takes Axe to Agency mREITs

The latest comments from a Fed official have agency mREITs reeling in today's trade. Boston Federal Reserve President Eric Rosengren confirmed on Tuesday that the Fed believes total inflation, not the so-called core rate, is really what monetary policy should target over the long-run.

Rosengren expressed concern over continued high commodity prices, noting that "...it seems to be taking quite a long time to date for long-run supply and demand influences to rein in oil price increases."

Oil prices are at record highs near $139 a barrel, and the average cost of gasoline nationally has surpassed $4 a gallon for the first time. These trends put upward pressure on prices and raise the threat of inflation.

Investors now believe the central bank will leave benchmark rates on hold at their current 2% level. Tough talk on inflation from a string of Fed officials have also prompted the markets to begin pricing in an eventual rate hike, as early as October.

The agency mREITs reacted strongly to the threat of accelerated rate hikes. At last check, Annaly Capital (NLY), Capstead Mortgage (CMO), MFA Mortgage (MFA), Anworth Mortgage (ANH), and Hatteras Financial (HTS) were all trading lower by more than 5%.

Catch Up on the Action - Mortgage REIT Insider

It's Friday, which means yours truly has another edition of Mortgage REIT Insider posted at fellow blog Housing Wire. Covered in this week's edition:

• Chimera Investment's (CIM) leverage woes
• Thornburg Mortgage (TMA) is still taking a time-out
• Capital Trust (CT) has a new source of capital
• BRT Realty Trust's (BRT) buyer bust
• New York Mortgage Trust (NYMT) makes the long trek to the NASDAQ
• NovaStar Financial (NOVS.PK) may be taking its dying breaths

Please enjoy and I hope it makes up for the lack of posting this week -- I do have a day job after all.

Charming Chimera Learns Painful Lesson on Leverage

The initially successful Chimera Investment Corp. (CIM), which came public back in November, is having to admit they may have bitten off more than they can chew.

I originally posited in March that Chimera was quietly struggling to stay afloat after levering up at just the wrong time -- levering up four-fold just as competitor MFA Mortgage (MFA) was selling assets to de-lever its balance sheet.

After torching MFResidential's planned IPO, the poor conditions in the non-agency RMBS market chopped into Chimera, who slashed its quarterly dividend by 37.5%.

Matthew Lambiase, CEO and President of Chimera, commented on the dividend situation thusly: “Specifically, conditions compelled us to adjust our ramp-up pace and run our leverage at a more defensive level as we headed into the second quarter.”

In other words, maybe that $500 million repo facility with CSFB and a $350 million repo line with Deutsche Bank back in January wasn't such a good plan.

To be fair, Chimera did manage to complete a $619.7 million securitization, a long-term financing transaction whereby it securitized its then-current inventory of mortgage loans. Perhaps a lesson well learned.

Thornburg Ensnarled by SEC

Who knew one late quarterly filing could cause this much drama? Thornburg Mortgage (TMA) needs more time to sort out its mess. The Company again postponed the filing of its first quarter 10-Q, citing the ongoing complexity of the accounting issues raised by infamous Hail Mary deal of March 31. Until Thornburg dutifully sorts out its homework, it's gonna face the wrath of quite a few angry investors.

Thornburg Mortgage’s delay in filing its Form 10-Q impacts the timing of several other pending transactions. Until the Form 10-Q is filed, the Company cannot file (1) the prospectus supplements for the registration of resales of Senior Subordinated Notes and common stock issued upon exercise of warrants (meaning MatlinPatterson is stuck with a sizable illquid investment), or (2) the Registration Statement on Form S-4 and related documents relating to the previously announced exchange offer for the Company’s preferred stock (meaning those guys can't get their $5/share payoff until September 30, 2008.)

Unrelated to the matters described above, on May 29, 2008, the Company received a letter from the NYSE stating that the Company is not in compliance with the NYSE’s continued listing criteria under Section 802.01C of the NYSE Listed Company Manual because the average closing price of the Company’s common stock has been less than $1.00 for 30 consecutive trading days. (emphasis added)

To cure this deficiency, the Company’s common stock must regain a $1.00 share price and a $1.00 average share price over 30 consecutive trading days. If the Company has not cured the deficiency within six months, the common stock will be subject to suspension and delisting procedures. The Company intends to cure this deficiency by implementing a reverse stock split, and has notified the NYSE of its intent. Shareholder approval of the reverse stock split is not required. Specific information regarding the timing and details of the reverse stock split will be released at a later date. (emphasis added)

With all the gymnastics and gyrations Thornburg has performed in the last year, a reverse split should be no problem.