Q4美國按揭REITs盈利預(yù)覽：賬面價值下降但利好的Q1會緩解其影 響

1、28 January 2019 Americas/United States Equity Research Mortgage FinanceResearch Analysts Douglas Harter, CFA212 538 5983 HYPERLINK mailto:douglas.harter douglas.harterJosh Bolton, CFA212 325 8963 HYPERLINK mailto:joshua.bolton joshua.boltonSam Choe, CFA212 325 5957 HYPERLINK mailto:samuel.choe samue

2、l.choeMortgage REITsSECTOR FORECAST4Q18 Earnings Preview: Book Value Declines, But Favorable 1Q Update Softens The ImpactAs 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 ha

3、s 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

4、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 (f

5、rom $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 elsewher

6、e 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 MB

7、S 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 n

8、egative 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

9、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

10、 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) remain

11、s 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.DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE

12、 AND THE STATUS OF NON-US ANALYSTS. US Disclosure: CreditSuisse 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 consid

13、er this report as only a single factor in making their investment decision.Additional DetailsCommercial mREITs Expect more of the same: By the nature of loan accounting (and not mark to market) commercial mREITs should be far more stable than the residential mREIT peers in the quarter. On a fundamen

14、tal basis we expect fourth quarter earnings to be a continuation of the trends of stable (and strong) credit quality and steady returns. One of the key areas of focus on the conference calls will be the impact of the market volatility on incremental spreads and investment volume.2019 Outlooks: HYPER

15、LINK /r/_Xfr42AN-VHSK Residential mREITs: Returns to Improve From Last HYPERLINK /r/_Xfr42AN-VHSK Year, but Still Below Average; NRZ, PMT Top Picks; HYPERLINK /s/_Xfrw4AN-XtNl Commercial HYPERLINK /s/_Xfrw4AN-XtNl mREITs and Servicers: Cycle is Old, But Fundamentals to Remain HYPERLINK /s/_Xfrw4AN-X

16、tNl Stable; STWD, CWK Top PicksResidential Mortgage REITsAGNC and CMO kick off mortgage REIT earnings season on Wednesday, January 30, after market close. Residential mREITs had a tough quarter to end 2018, as we expect book value declines of 5% on average for the quarter, with wider Agency MBS spre

17、ads the main contributor to the decline.Book Value: We are lowering our 4Q18 book value estimates by 1.5%, to reflect a weaker than observed spread environment in December, which we now expect to have negatively impacted the mREIT more than originally thought. This weakness can be seen in the 4.6% d

18、ecline in book value posted by ARR in December. We are expecting the agency-focused mREITs to have experienced large declines in book value, while credit sensitive names should have fared better. In terms of moves since quarter end, we have seen the sharp 4Q decline in rates moderate in January (10

19、year yields are up a few basis points since the start of 2019, and Agency MBS spreads are several bps tighter than where we ended the year; 1-3 bps tighter, depending on coupon). Combining those two levers, we estimate that book values are flat to up slightly (1%) in the first quarter, after the dif

20、ficult 4th quarter performance we are expecting.Estimates: We have adjusted our Fed rate hike assumptions in our models to match Credit Suisses Economists house view of two rate hikes in 2019 (Sept/Dec, vs Mar/June previous). This pushes out the rising cost of funds by a few quarters, which should h

21、elp push out some of the NIM compression we were expecting in the first half of the year. On average we are increasing our 2019 estimates by 1% heading into the upcoming earnings print.Capital: The flipside of the book value declines we expect to be reported this quarter due to the selloff in mortga

22、ges is that incremental ROEs on new capital or portfolio runoff reinvestment have increased 100+ bps, depending on duration gap and leverage. We have seen three mortgage REITs raise capital in the first quarter (NLY, ARR, and NYMT) in order to take advantage of better return opportunities. While we

23、are expecting continued pressure on MBS spreads throughout 2019 as the Feds portfolio runoff continues, the move should be more moderate and digestible than the moves we saw in the 4th quarter if the mortgage REITs continue to trade close to/above book value, we would expect additional capital raise

24、s this year.Prepayment worries: As rates sharply declined into the end of 2018, questions began surfacing around prepayment levels, and how low rates (and presumably higher refinance activity) would affect mREITs holding MSRs, which become less valuable with lower mortgage rates. While Treasury rate

25、s were down significantly in the fourth quarter, mortgage rates only fell modestly in the quarter (37 bps vs 17 bps). Additionally, given the extended period of low interest rates in the past decade, we would need to see the mortgage rate fall another 50+ bps from current levels to see a meaningful

26、pickup in prepayment speeds. Credit Suisse Securitized Products expects prepayments to increase 9% and 17% in February and March given the decline in rates. To put that in perspective the March CPR would still be below the 6-month average CPR.Risk-Reward: Given our base case assumptions that rates a

27、re biased higher and spreads moderately wider, we continue to have a preference for mREITs that take less rate risk, and have a history of protecting book value in volatile markets NRZ and PMT are our top picks (EFC, CIM, and TWO are also rated Outperform).Downgrading ANH to Underperform: We are dow

28、ngrading Anworth Mortgage (ANH) to Underperform (from Neutral), and lowering our target price to $4 (from $4.25), which represents an 18% discount to our 4Q book value estimate. While ANH already trades at a 10% discount to 4Q18E book value, the outlook for continued weak risk-adjusted returns leads

29、 us to see better total return opportunities elsewhere in our mREITcoverage. This is based on the outlook for lower expected ROEs combined with a recent history of producing more volatile returns.Lower ROE: ANHs estimated 2019 ROE is 9.3%, which is 160 bps lower than the peer average. ANHs ROEs cont

30、inue to be negatively impacted by its high level of CPRs (and premium amortization drag) from the ARM portfolio. The ARM portfolio currently represents 37% of the total Agency portfolio, but ANH is transitioning this portfolio to fixed rate MBS. While this is likely to improve returns from current l

31、evels this has contributed to the increased risk and volatility the portfolio has seen over the past 2 years vs. longer term trends.Lower dividend coverage: ANH screens near the bottom of our coverage universe on core dividend coverage (covering the dividend with core earnings), with 87% coverage ex

32、pected in 2019 (vs peer average of 100%, or full coverage). While this is not necessarily indicative of an upcoming dividend cut, the excess dividend acts to further reduce book value.Poor risk-adjusted returns: Over the past 9 quarters ANH screens as the 2nd worst residential mREIT in risk-adjusted

33、 returns, which we define as average economic return divided by the standard deviation of returns. Over a longer period (5-years) ANH screens better as it is in the middle of pack and tops among the Agency focused mREITs.Risks: The main risk to our Underperform rating is a significant increase in sh

34、are repurchase activity. In the past ANH has been active in repurchasing shares when the stock has been at a 15% discount to book value.Figure 1: CS Estimates vs Consensus4Q 2018E2018E2019E2020ECS OldCSConsensusCS OldCSConsensusCS OldCSConsensusCS OldCSConsensusAGNCAI$0.58-$0.59$0.43$0.59$0.46-$2.42

35、$2.05$2.42$2.08-$2.45$1.70$2.33$1.76-$2.55$1.75$2.39$1.75ANH$0.12$0.11$0.12-$0.50$0.50-$0.45$0.45$0.46$0.45$0.46ARR$0.63$0.61$0.62$2.57$2.55$2.56-$2.30$2.33-$2.30$2.20CIM-$0.59$0.58-$2.35$2.34-$2.25$2.27-$2.20$2.35DX-$0.18$0.19$0.73$0.74$0.72-$0.70$0.73-$0.75$0.73EARN-$0.31$0.32$1.34$1.33$1.34$1.15$

36、1.20$1.15-$1.15$1.15EFC$0.30($0.03)$0.36$1.88$1.55$1.93-$1.60$1.56$1.60$1.59$1.59IVR$0.42$0.41$0.42$1.69$1.68$1.68$1.55$1.60$1.64-$1.60$1.60MFA-$0.16$0.18-$0.65$0.74$0.65$0.66$0.76-$0.66$0.79MITT-$0.53$0.51-$2.25$2.23$2.15$2.20$2.05-$2.15$2.04NLY-$0.29$0.29-$1.19$1.19$1.18$1.20$1.18$1.18$1.20$1.19NR

37、Z-$0.56$0.56-$2.35$2.35-$2.25$2.27-$2.25$2.27NYMT-$0.11$0.15-$0.72$0.77-$0.75$0.67-$0.75$0.64PMT$0.36$0.37$0.41$1.17$1.18$1.76-$1.75$1.77-$1.90$1.90TWO-$0.47$0.47$1.97$1.95$1.96-$1.90$1.89-$1.85$1.91Source: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL serviceFigure 2: 4Q Book Value Estimates4

38、Q171Q182Q183Q184Q18E1Q19E% Change4QE/3Q1QE/4QEY/YAG MortgageMITT$19.62$19.32$18.98$19.16$18.48$18.68(3.5%)1.1%(3.3%)AGNC InvestmentAGNC$19.69$18.63$18.41$18.00$16.63$16.75(7.6%)0.7%(10.1%)AnnalyNLY$11.34$10.53$10.34$10.04$9.54$9.62(5.0%)0.8%(8.7%)AnworthANH$5.91$5.48$5.33$5.12$4.85$4.86(5.2%)0.2%(11

39、.3%)Arlington Asset (ex-DTA)AI$13.40$11.65$11.37$11.06$10.07$10.23(9.0%)1.6%(12.2%)ArmourARR$26.63$24.61$23.68$23.49$20.84$20.92(11.3%)0.4%(15.0%)ChimeraCIM$16.85$17.12$17.01$17.02$16.33$16.53(4.0%)1.2%(3.5%)DynexDX$7.34$7.07$6.93$6.75$6.48$6.50(4.1%)0.4%(8.0%)Ellington FinancialEFC$18.84$19.24$19.5

40、8$19.37$18.95$19.10(2.2%)0.8%(0.7%)Ellington ResidentialEARN$14.45$13.90$13.70$13.40$12.73$12.70(5.0%)(0.2%)(8.6%)Invesco MortgageIVR$18.35$17.16$17.06$16.83$16.12$16.31(4.2%)1.2%(4.9%)MFA FinancialMFA$7.70$7.62$7.54$7.46$7.37$7.39(1.3%)0.3%(3.0%)New ResidentialNRZ$15.26$16.73$16.80$16.87$16.25$16.3

41、0(3.7%)0.3%(2.5%)New York MortgageNYMT$6.00$5.79$5.76$5.72$5.68$5.73(0.7%)0.9%(1.1%)PennyMacPMT$20.13$20.24$20.27$20.48$20.20$20.40(1.4%)1.0%0.8%Two HarborsTWO$16.31$15.63$15.69$14.81$14.09$14.19(4.9%)0.8%(9.2%)Mortgage REITs avg(4.8%)0.7%(6.7%)Source: Company data, Credit Suisse estimates, Credit S

42、uisse LocusFigure 3: 30-year MBS Spread Change (bps)Blended FNMA coupon stack (20% 3.0s, 60% 4.0s, 15% 4.5s, 5% 5s)2520151050-5Source: Credit Suisse LocusFigure 4: MBS Spread Correlation to Risk Assets (S&P 500)Correlation between 30-year FNMA Spread (to swaps) % change and S&P 500 % change80.0%60.0

43、%40.0%20.0%0.0%-20.0%-40.0%-60.0%May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18Jan-19-80.0%Source: Credit Suisse LocusFigure 5: mREIT Price to Book mul

44、tiple (current vs 5-year range)1.801.601.401.201.311.271.151.131.071.211.601.431.071.071.141.141.041.061.081.361.000.801.121.071.051.030.980.970.960.960.960.960.950.930.900.600.400.700.610.700.720.600.700.810.550.560.670.750.590.620.850.820.800.630.690.660.200.00CIM NYMT AGNC NLYARRTWONRZPMTIVRDXMFA

45、MITTANH EARN EFCAI5 year P/B rangePrice to 4QE BVSource: Credit Suisse estimates, the BLOOMBERG PROFESSIONAL serviceFigure 6: Refi exposure vs Change in RatesHorizontal Axis shows a drop in mortgage rates (%); left axis shows amount of incremental mortgages ($B) with at least 50 bps if refi incentiv

46、e (in $B); right axis shows % of mortgages with 50 bps of incentive400350300250200150100500Incremental Exposure ($B)Cumulative Exposure (%)90%80%70%60%50%40%30%20%10%0%Source: Credit Suisse LocusFigure 7: Upside vs Downside22%21%16%12%12%10%11%9%6%8%5%6%4%6%2%2%-9%-9%-10% -10%-8%-8%-10%-12%-11%-9%-1

47、4%-13%-13%-14%-18%-20% Upside to target price (plus dividend) divided by downside to Grey Sky Valuation (plus dividend)25%20%15%10%5%0%-5%-10%-15%-20%-25%NRZPMTCIMEFCTWO MITTAIEARN AGNC MFAIVRNLYDXARRANH NYMTSource: Company data, Credit Suisse estimates, Credit Suisse LocusCommercial Mortgage REITsC

48、ommercial mREITs should continue to post solid returns with little to no credit issued as the commercial credit cycle continues to extend without much in the way of warning signs that it could be rolling over any time in the foreseeable future. STWD remains our top pick, given the earnings sustainab

49、ility from its diversified strategy (6 different business lines), and its current discount to BXMT (also rated Outperform). For more on our full year outlook, see our 2019 preview: HYPERLINK /s/_Xfrw4AN-XtNl Commercial mREITs and Servicers: Cycle is Old, But HYPERLINK /s/_Xfrw4AN-XtNl Fundamentals t

50、o Remain Stable; STWD, CWK Top Picks.Estimates: We are moderately lowering our estimates for 4Q and 2019 (by 0.5% and 1.2% respectively), reflecting adjustment made to our LIBOR assumption for the year. We have adjusted our Fed rate hike assumptions (proxy for LIBOR) heading into 2019, and now expec

51、t rate hikes in September and December (vs March and June previously). Given the floating rate nature of the commercial mREIT loan portfolios, this will put slight downward pressure on our estimates, given the delay in the benefit of higher base rates.Spreads: Lending spreads should continue to be p

52、ressured to the downside, due to increasing competition in bridge lending. The increased volatility in risk assets experienced in the fourth quarter could help pause the decline in spread compression and this outlook will be a key focus of fourth quarter earnings calls.Growth/Leverage: With no addit

53、ional capital raised in 4Q, any substantial portfolio growth will come from changes in leverage levels. (We do not expect any major changes in baseline leverage this quarter.) Our focus will therefore be on the efficiency that the commercial mREITs are about to redeploy portfolio runoff to minimize

54、cash drag and maximize net interest income. Specifically, we will be looking for updates on ACREs new warehouse agreement with its external manager, ARES, that in theory should help them reduce the time between repayment and cash deployment from 30-45 days down to just a few days (or less). Reducing

55、 this turnaround time by 30 days could add 2-5% to earnings power annually, depending on the structuring and fees associated with that agreement. We expect to hear more around specifics of the agreement with 4Q earnings.Credit: We do not expect any significant credit hiccups in the first quarter, an

56、d any rating decreases or new non-accruals should be small and one-off rather than a signal of a turning in credit quality. For a full view on commercial credit quality at this part of the cycle, refer to our HYPERLINK /s/V7edSN4AF-XXDa 4Q Commercial Credit Rundown here.Top Pick: In our view, STWDs

57、diversified business model (7 investment cylinders, including the new infrastructure lending segment acquired this year) gives the company a competitive advantage over peers to be able to generate outsized risk-adjusted returns in many different macro environments. Our Outperform rating and $25 targ

58、et price are derived from our sum of the parts valuation, as we continue to see pockets of value within the company that are not fully recognized by the market at current levels. For a deeper dive into the value within the 7 cylinders of STWD, see our investor day report HYPERLINK /s/V7enhI4AF-XXDa

59、HERE. We also have an Outperform rating on BXMT, as we expect their first mortgage lending model to consistently generate earnings at or above their current dividend. Our preference for STWD comes from the valuation gap between the two companies currently STWD trades at 170 bp wider dividend yield t

60、han BXMT.Figure 8: CS vs Consensus4Q 2018E2018E2019E2020ECS OldCSConsensusCS OldCSConsensusCS OldCSConsensusCS OldCSConsensusACRE-$0.32$0.32-$1.36$1.37-$1.30$1.32-$1.30$1.26BXMT-$0.67$0.65-$2.88$2.87$2.75$2.70$2.71-$2.70$2.73STWD-$0.57$0.54-$2.23$2.18$2.25$2.23$2.20-$2.25$2.20Source: Company data, C