Mortgage REIT Roundup - February 15th

Just a few odds and ends here that merited a quick note...

Dynex Capital (DX) reported fourth-quarter earnings of $0.05/share and a GAAP book value of $8.22/share. The Company also declared a $0.10/share common stock dividend despite having continued net operating loss carryforwards (and therefore no taxable income). Dynex is optimistic about its future prospects, electing to pursue an agency MBS strategy in addition to its previously announced efforts in CMBS. Dynex stock was up on the earnings news and the future outlook.

MFA Mortgage (MFA) shares sank despite reporting $0.16/share in fourth-quarter earnings and improving its net interest margin by 29 basis points versus the prior quarter. Book value, however, was just $6.76/share, which may have prompted the pullback in the share price from a 1.6x book valuation to just 1.4x book value.

New York Mortgage Trust (NMTR.OB) announced that it had privately placed 15 million shares at $4.00.share. The $57 million in expected net proceeds is expected to be used to purchase agency MBS. NMTR continues to seek strategies to produce taxable income that can be used to offset their sizable deferred tax asset.

Dynex Delivers

Little-known mortgage REIT Dynex Capital (DX) was out with Q3 results this morning, swinging to net income of $2.7 million for the period. How did Dynex post a profit while other mREITs are struggling? "During the third quarter, we purchased $10.5 million of securities at attractive prices, including $3.2 million of common stock in publicly traded mortgage REITs and $2.3 million of publicly traded preferred stock in those and other mortgage REITs." Dynex is taking advantage of a loophole in the REIT tax code that allows REITs to treat investments in other REITs as qualified assets / income. Therefore, Dynex can bet on other mREITs, much like a hedge fund would, and still remain a mortgage REIT. The problem with this strategy is that Dynex's investments are all concentrated in this one sector, so another market dislocation like we had this summer could vaporize the value of Dynex's investments (see RAIT Financial Trust as an example).

Nonetheless, Dynex has waited patiently for opportunities to invest its available capital, and if the company is correct about a bottom being in on mortgage REIT equity prices, Dynex's big bet could reap serious rewards.