Mortgage REIT Insider: FBR’s Flush First Quarter

It was a relatively slow week for the mortgage REIT sector, as most mREITs aren’t reporting first quarter earnings for another week and a half. FBR Group (FBR) was one of the few chiming in, however, swinging to a first-quarter profit on the reversal of $73 million in pre-bankruptcy losses for First NLC Financial Services, FBR’s former subprime mortgage origination subsidiary. The company is continuing its return to a core strategy of managing a portfolio of agency-backed hybrid ARMs, while utilizing its NOLs to shield itself from taxable income. FBR said it was seeing haircuts on repo financing remaining stable at about 5 percent for its agency-backed portfolio, and also said that it expected to return to a cash operating profit by the end of the third quarter. Dividend developments Dividend declarations did provide a bit of noise for the week, despite the dearth of earnings announcements. JER Investors Trust (JRT), which sold a number of assets during the first quarter to raise cash, sliced its dividend by a third, from $0.45/share to $0.30/share. Meanwhile, New York Mortgage Trust reinstated its common stock dividend at $0.06/share, despite significant tax loss carryforwards and a fire sale of assets during the first quarter. Which means, of course, that either NYMT is betting on a big pickup during the second half of 2008 — or the dividend is just a carrot for the PIPE investors who bought into NYMT for four bucks a share just two months ago. NorthStar Realty Finance (NRF) maintained its existing payout, $0.36/share. Mergers and Acquisitions CBRE Realty Finance (CBF) and Arbor Realty Trust (ABR) ended their long-standing catfight with the disclosure of a 12-month standstill agreement. Arbor agreed to drop its proxy contest and agreed to vote in favor of CBRE’s Board nominees, in exchange for the right to bid on CBF should it choose to sell itself within the next 12 months. Not much in it for Arbor, but then the $8/share they bid for CBF last fall isn’t looking so hot right now, either. Looking ahead, earnings season heats up next week, with reports from Capstead Mortgage (CMO), iStar Financial (SFI), and Arbor Realty Trust. 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 two 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 was long shares of CMO and NRF at the time of this writing.