Mortgage REIT Insider: TED Spread Tackles Capstead

We knew it was coming, but the 465 basis point blow-out in October’s TED spread — the interest rates on interbank loans and short-term U.S. government debt — has come home to haunt one of the agency mortgage REITs. By failing to lock in the low spreads on its repurchase facilities, Capstead Mortgage (CMO) was forced to slice its fourth-quarter dividend by 34 percent, to just $0.36/share. Other agency mREITs fared much better, however, as MFA Mortgage (MFA) only trimmed its dividend by a penny and Dynex Capital (DX) maintained its $0.23/share payout. Annaly Capital (NLY) and American Capital Agency (AGNC) have yet to declare their dividends, but time will tell how well their hedging strategies have worked. Show me the money Hatteras Financial (HTS), which declared a $1.00/share dividend last week, used the positive news to announce a $207 million secondary offering. The shares priced below market at $22/share, and also below Hatteras’ original IPO of $24/share. However, the new issuance will help Hatteras bring its debt-to-equity back down from its current 8.7 to 1 ratio. The good times have officially come to an end, however, for BRT Realty Trust (BRT). The short-term commercial mortgage originator and investor disclosed a full-year GAAP loss of $0.02/share, driven primarily by $2.10 per share in loan losses and impairments. Most importantly, the company now expects a taxable loss for 2008 and completely suspended its $0.62/share dividend. Comings and goings Finally, a few shuffles in the mortgage REIT executive world. iStar Financial announced that CFO Katy Rice is retiring in March; she will be replaced by Jim Burns, iStar’s current executive vice president and treasurer. Meanwhile, over at Redwood Trust (RWT), co-founder Doug Hansen is retiring as president of the company. CFO Marty Hughes will step into the president role in January. Hansen is staying on with Redwood, however, retaining his seat on Redwood’s board of directors. Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past few years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday. Disclosure: The author held no positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.