Patrick Harden

Patrick Harden
Contributor since: 2007
Even if Prospect is slow to mark down the CLO equity, does it really that much unless the CLOs stop performing? It's one thing if the mark is due to general spread widening; it's another if it's due to a downgrade of the CLO's rated tranches. As long as Prospect can continue to hold the CLOs and the CLOs continue to perform, I'm not that worried about what the "real" mark is. It's all a guess anyway if there are no market quotations.
No mention of the spins. I'll be interested to see if it comes up on the call. No outright denial of SEC investigation, which is troubling.
"The company expects to issue a dividend of $0.23 per share for the first quarter of 2016, subject to approval by its Board of Directors. The company anticipates that a quarterly dividend level of $0.23 per share will be sustainable for the year."
Every mortgage REIT should do this in its Q4 earnings release.
Apparently Arlington was reading your article because they're going to change their accounting beginning in Q1 2016 per today's earnings call. They also changed their hedging portfolio pretty meaningfully. The Q&A on the call was not particularly insightful - no one pressed too hard on share repurchases. Rock did say that any accounting changes had been contemplated when the board reset the dividend, so I guess they think they can continue to cover the dividend with "real" core income.
It seems like a no-brainer that AI should liquidate the private-label MBS portfolio and use the proceeds to buy back as much stock as they can.
Icahn categorically denied the reports to CNBC. Says he has no shares of TWX.
The Company did acknowledge that it plans to pay out a $1.75/share annual dividend in 2016, although I'm skeptical that a rental REIT can generate that kind of ROE. Like Mevo said, these prior dividends were attributable to the NPL business.
The director vote and the stock issuance below NAV votes have different thresholds. The directors have already received sufficient YES votes to secure their re-election even if all the outstanding unvoted shares were to vote NO.
I think your characterization of the adjournment is misleading. 40% of all eligible shares weren't voted at all. I think having a bit more time to round up straggler votes isn't that egregious.
The math from the 8-K shows that both men received 85% of votes actually cast.
This headline is misleading. Eliasek garnered a significant majority of votes actually cast, which was nowhere near the 355M possible. PSEC has a hard time getting its retail shareholder base to cast their votes.
From the 40-APP, again: "In April 2015, the Company formed PRIT as a wholly-owned subsidiary and Maryland corporation. PRIT’s portfolio is currently indirectly owned by the Company through two wholly owned REITs, American Property Realty Corporation (“APR”) and United Property Realty Corporation (“UPR” and together with APR, the “PSEC REITs”). The PSEC REITs collectively own interests in eight joint ventures (the “Joint Ventures”) in which their ownership interest ranges from 70.3% to 99.3% (the “Joint Venture Interests”). The Joint Ventures represent 40% of the Company’s real estate portfolio at cost as of June 30, 2015. The Company intends to enter into a contribution agreement with PRIT and its operating company pursuant to which the PSEC REITs would contribute their Joint Venture Interests, together with $50 million in cash (collectively, the “PRIT Transfer Assets”) to PRIT and its operating company in exchange for (i) 100% of the PRIT common stock to be sold by the PSEC REITs upon the exercise of the rights in the rights offering and (ii) the PSEC retained interest in the form of operating partnership units."
No mention of National Property. I don't think it's going in the spin.
One of the spins is an equity REIT. From the 40-APP filing: "Prospect Realty Income Trust ("PRIT") is a newly organized, externally managed Maryland corporation focused primarily on the ownership, acquisition and management of Class B multifamily apartment rental properties. PRIT intends to elect to be taxed and to operate in a manner that will allow it to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes."
I don't think this spin currently includes the assets of National Property, though. I think it will include the assets of two of the other private REITs.
When I read the 3Q earnings transcript, it was clear to me that TWO's dividend this year is being supported by capital gains. However, after this year, taxable income should come back more in line with core earnings. I would not be surprised to see TWO cut the quarterly dividend by 2 or 3 pennies in Q1 2016. I think it's largely priced into the stock.
Except they're paying half of it in stock while trading 35% - 40% below NAV - very dilutive.
I was wondering what you thought about Annaly's presentation shift. I personally like it, since it smoothes out the distortion from swings in the CPR projections. I really like the direction Annaly is going under Kevin Keyes - they've really turned things around in the past few quarters in terms of investor consideration.
The press release was worded pretty vaguely. GSVC filed its 2013 tax return as a RIC, but because it hadn't received exemptive relief from the SEC allowing it to elect RIC status, it kept its deferred tax liabilities. This press release doesn't even address the 2013 taxable year.
I assume they gave up on 2013, re-filed it as a C-Corp, and then qualified as a RIC for 2014 outright without SEC exemptive relief. I further assume that GSV is going to actually apply the RIC status to its GAAP bookkeeping now, resulting in the removal of its deferred tax liabilities and a nearly $1 increase in NAV.
But based on this press release, who knows what actually is the deal?
What are your thoughts around the tax drag from the servicer advances? NRZ has to hold those in a TRS because they aren't good REIT assets. Do you feel the return possibilities on servicer advances are high enough to outweigh the tax drag they create?
Management actually spent a bit of time addressing the dividend on the Q2 earnings call this week. The dividend is currently being supported by capital gains from the sale of securities during H1. These gains are excluded from core earnings but are nonetheless part of REIT taxable income. Generating distributable income from asset sales is not a sustainable approach over the long term, but TWO estimates that it has only distributed 76% of estimated 2015 REIT taxable income YTD. Therefore, the dividend still has a cushion from capital gain income for the rest of 2015.
It still isn't very clear what Prospect is going to do with the capital raised via the rights offering. The company is divesting itself of three pretty successful lines of business with no clearly articulated plan for what is going to replace that business.
I think you deserve a victory lap. Great analysis and actionable trade that delivered results very quickly. Kudos all around!
Oh lord, here come the pitchforks.
I'm very surprised that Annaly has not made an offer for Chimera or at the very least increased its stake. I thought they were just waiting for Chimera to file its delinquent financials and get stabilized, but an NLY offer hasn't materialized. Given Annaly's rather vehement distaste for stock buybacks, why not employ AGNC's rather elegant solution of buying ANOTHER mREIT that is trading at a large discount to book - thereby taking advantage of a very accretive investment opportunity without decreasing assets under management.
This is a special dividend, not a bump in the normal quarterly dividend.
LOL. I wish I'd had some popcorn for this one. Not quite as juicy as the PSEC call last quarter, but highly enjoyable nonetheless.
I would like to know what kind of investments PSEC is planning on making with the rights offering proceeds that have a higher return than the equity tranches of CLOs.
The best part was that they tried to smooth over the gap between ordinary taxable income and the dividend payout by highlighting "Core Income and estimated taxable Real Estate Investment Trust ("REIT") income of approximately $1.9 million, or $0.16 per Common share, and tax capital gains realized of approximately $4.3 million." As if they didn't have a giant net capital loss for tax purposes to absorb those gains.
I don't normally read much of the Fool any more, but that article summed up the situation nicely, particularly Wathen's conclusion - "I see this rights offering as a way for Prospect Capital to dump its CLOs at an above-market price to its existing shareholders, create desperately needed liquidity at Prospect Capital Corporation, and generate more fee-earning assets for its external manager, which is seemingly the only beneficiary of a rights offering vs. a true spinoff."
Honestly, I think the best thing PSEC could do to create value is sell the company to someone with credible management. Or liquidate. That last earnings call was pretty much the last straw for me with them.
I still own a small position just because I haven't needed the tax losses yet this year and at this point, I'm just hate-owning the stock.
Annaly is running with pretty low leverage at the moment - somewhere on the order of 5.5x. Taking leverage up into the 6s could mitigate some of the spread narrowing. Not much can be done about prepayments, but haven't most people who could refinance already done so?
Would really like to see Annaly buyout Chimera and fold in some non-agency RMBS to the portfolio for additional yield and diversification.
The dividend cut should have been anticipated by everyone after these comments from Gary Kain on the fourth quarter earnings call: "We maintained our $0.65 dividend in Q4 against the backdrop of $0.51 of taxable income in the quarter.
As such, the remaining $0.14 per share of our dividend essentially came from undistributed taxable income, which was in essence income earned in prior periods. Given today’s market conditions and our current portfolio positioning, we don’t expect to see a near term increase in taxable or GAAP earnings. These are important factors both management and the board will consider with respect to future dividends."
Wow. Reading this was uncomfortable enough. I can only imagine how it sounded on the call. Jon Bock makes a good point though. I hope PSEC can deliver on this magical spinoff plan of theirs.