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REITs
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CS on mREIT DividendsMonthly dividends (4): 4 of our covered mREITs (AGNC, ARR, DX, EFC) have monthly dividends, which have already been declared. The current monthly dividend levels imply an average dividend cut of 30%, with all but DX having cut their dividend. ▪ Resume/Increase divided (3): We are expecting increased dividends in the second quarter from NRZ and TWO, both of which declared dividends of $0.05 during the first quarter. On the commercial side we expect GPMT to resume paying out a dividend in the second quarter, after not paying one in the first quarter; the new expected dividend level is 40% below the most recently paid dividend. ▪ Stable dividend (2): We are expecting stable dividends in the second quarter for ANH and PMT. Dividend cut (8): We are expecting dividend cuts from CIM, EARN, NLY and RWT by 40% on average for the residential mREITs. We are expecting dividend cuts from ACRE, ARI, BXMT and STWD for the commercial mREITs by an average of 18%. ▪ No dividend (5): We expect no 2Q dividend from AI, IVR, MFA, MITT, and NYMT. As a reminder IVR’s 1Q dividend was delayed and paid (10% in cash) in 2Q. ▪ Book value decline vs. dividend decline: Given the nature of the mREIT business model as levered investors, there should be a strong relationship between the decline in book value and expected earnings power/dividend level. In the short-term, liquidity challenges which have caused 5 mREITs to suspend dividends skews the cumulative dividend cuts expected to be larger than cumulative book value decline. ▪ Dividend yield: The focus for residential mREITs valuation has been on book value (rightfully so) given the volatility in asset prices and the cuts to dividends. However, for the sector to fully recover it must once again be viewed as a source of yield in a low yield environment. On a market cap weighted basis the residential sector is yielding 9.7% on our 2Q expected dividend and the commercial sector is yielding 10.3%. |
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