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A Quick Look at mREIT Preferreds

As you all know many of the mortgage REIT preferreds fell fast and hard this week—either devasting investors or presenting a huge opportunity. We have seen large bounces the last 2 trading days, but prices remain very low.

Regardless of what these preferred stocks did this week and last this is a fluid situation and could change for the better or worse any day now so pay attention to your buys and sells.

I am suggesting that some investors with risk capital to devote to a more risky play look through these preferreds–the risk reward on many shares is very attractive–as long as one recognizes the risk. Remember all of these preferreds are cumulative dividends.

As most of you know mREITs leverage their mortgage portfolios with relatively short term repurchase agreements–using mortgages as collateral with an agreement to repurchase. If the collateral loses value the company must put up more collateral (per whatever the terms are in the agreement). This is where the counter party to the repurchase agreement demands more collateral–a margin call. If the mREIT can’t meet the margin call they try to negotiate a ‘forbearance agreement’ (an agreement to change the terms of the repurchase agreement for a while).

This week the Royal Bank of Canada has begun selling collateral from some of the mREITs below–apparently deciding not to agree to forbearance.

Let’s go through the line-up of companies and see where they are at as of this minute. The news flow is pretty active on these companies.

The mREIT preferred listing is here.

AG Mortgage Investment (MITT)

Preferred shares now in the $4.xx range. The company has announced they can NOT meet margin calls. Their press release.

AGNC Investment (AGNC)

This company hasn’t made any statements as of yet so it is assumed they met any margins calls made by counter parties. The company declared preferred shares on 3/13.

Preferred shares are in the $16-$19/share range.

Annaly Capital Management (NLY)

Preferred shares are trading in the $15-$18 area. The company has made no announcements so it is assumed they met margin calls if necessary.

Anworth Mortgage Asset Corp (ANH)

Anworth says they have ‘delayed’ declaring common share dividends–no mention of the preferred dividends. Their press release is here.

The preferred shares closed today in the $9-$10/share range.

Arbor Realty Trust (ABR)

No word from commercial and multifamily mREIT ABR. They have announced a $100 million in common buybacks.

Preferreds are trading in the $16-$17 area.

Arlington Asset Investment (AI)

No word out of AI. Preferred shares are trading in the $11-$12/share range.

Armour Residential REIT (ARR)

No word out of ARMOUR. Their monthly paying preferred is trading around $14.

Capstead Mortgage Corp (CMO)

Capstead made a statement on 3/18 but nothing since–statement at that time was positive.

Their preferred stock is trading around $18.

Cherry Hill Mortgage (CHMI)

No further word out of Cherry Hill since a 3/13 announcement of dividends declared.

The companies preferred stock is trading around $11-$12/share.

Chimera Investment (CIM)

No new word from CIM since 3/18 when they made an announcement of stock buybacks and successful ‘rolling’ of their repurchase agreements.

The companies preferred shares are trading in the $10.xx area.

Dynex Capital (DX)

No word from the company since the declaration of dividends on 3/19.

Preferred shares are trading in the $17 area.

Ellington Financial (EFC)

No word out of EFC at this point. Their 1 preferred issue is trading around $9.

Exantus Capital (XAN)

The company did NOT meet margin calls and default notices have been issued by one of their counter parties–Royal Bank of Canada. The company has rescinded previously declared dividends. The notice is here.

The company’s preferred stock is trading at $4.40.

Invesco Mortgage Capital (IVR)

The company did NOT meet margins calls and has suspended the dividend of both common and preferred shares.

The preferred shares are trading in the $7-$8 range.

MFA Financial (MFA)

MFA could NOT meet margins calls and has suspended all common and preferred dividends. The preferred shares are trading at $4.25.

New Residential Investment (NRZ)

No word out of the company. Preferred shares at trading around $9-$10.

New York Mortgage Trust (NYMT)

The company could NOT meet margin calls. All common and preferred stock dividends are suspended.

Preferred shares are trading at in the $4.xx area.

PennyMac Mortgage Trust (PMT)

The company has declared a reduced dividend on the common and plans to pay preferred dividends. The company has had no margin calls.

The preferred shares are trading in the $16 area.

Two Harbors Investment (TWO)

TWO announced the suspension of common and preferred stock dividends. The company met all margin calls.

Today the company announced the sale of all their non-agency mortgages.

Disclosure – I bought 100 share of the Chimera 8% perpetual (CIM-B) @ $8.80 and 100 shares of the Invesco Mortgage Capital 7.75% perpetual (IVR-B) at $4.60 earlier this week. I plan to build a small portfolio (maybe 1000-2000 shares) of mREIT preferreds over the course of the next week.

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