瑞信-美股-房地产行业-Q4美国按揭REITs盈利预览：账面价值下降，但利好的Q1会缓解其影响-128-37页.pdf
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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
28 January 2019
Americas/United States
Equity Research
Mortgage Finance
Mortgage REITs
SECTOR FORECAST
Research Analysts
Douglas Harter, CFA
212 538 5983
douglas.harter@credit-suisse.com
Josh Bolton, CFA
212 325 8963
joshua.bolton@credit-suisse.com
Sam Choe, CFA
212 325 5957
samuel.choe@credit-suisse.com
4Q18 Earnings Preview: Book Value Declines,
But Favorable 1Q Update Softens The Impact
As the mREITs begin to report 4Q earnings (AGNC and CMO after the close
on 1/30) we expect to hear of a weak 4Q with a partial rebound in January.
This improved tone in markets has led to a strong start to 2019 for the mREIT
sector (up 8% on average). While the market feels stronger today we expect
volatility (from both rates and the economy) to be elevated for the year. We
continue to favor the mREITs with better risk controls and less historical
volatility in returns. Our top picks are NRZ and PMT on the residential mREITs
and STWD among the commercial mREITs; additionally we are downgrading
ANH to Underperform (from Neutral).
■ Downgrade ANH to Underperform: We are downgrading Anworth
Mortgage (ANH) to Underperform (from Neutral), and lowering our target
price to $4 (from $4.25), which represents a 18% discount to our 4Q18
book value estimate (previous target price represented 12% discount).
While ANH already trades at a 10% discount to 4Q18 book value, the
outlook for continued weak risk-adjusted returns leads us to see better total
return opportunities elsewhere in our mREIT coverage.
■ Increasing target prices 1%: We are increasing target prices by 1% on
average for the residential mREITs following the strong move in risk assets
to start 2019. The biggest change is a reduction in the expected
non-Agency price declines. We continue to expect modest Agency MBS
spread widening for the full year 2019, despite the strong start to the year.
■ Estimates: We are changing estimates on 14 mREITs given a delay in the
timing of the next Fed Funds increase to September and December (from
March and June). This is directionally positive for the residential mREITs
and negative for the commercial mREITs, but of relatively small magnitude
(2019 estimates increased by 1% on average).
■ Residential mREITs 4Q book values challenging, but 1Q off to a good
start: The fourth quarter was a challenging quarter for the mREITs with an
expected 4.8% decline in book value for the quarter (on average); this is
1.5% lower than our prior estimate as spread widening in December was
greater than our initial read on January 2. This weakness can be seen in
the 4.6% decline in book value posted by ARR in December. On a positive
note we expect management commentary about January book value
performance to be positive given the improved tone in risk assets, including
Agency MBS (spreads tighter by 1-3 bps month to date); as of January 25
we estimate that 1Q book values are up 0.5-1%. The historical correlation
between Agency MBS spreads and risk assets (S&P 500 as a proxy)
remains elevated compared to the long-term average, which has reduced
the attractiveness of Agency-focused mREITs as a relatively safer haven in
these periods of market volatility.
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