Weekly Real Estate News
PennyMac Mortgage Investment Trust said Thursday that it expects to reduce its common-share dividend and favor stock repurchases after reporting a $36 million third-quarter loss attributable to common shareholders.
The mortgage real estate investment trust lost $0.41 per common share in the quarter ended September 30, compared with net income of $48 million, or $0.55 per share, a year earlier. Net investment income declined to $36 million from $99 million, a 63% decrease.
The company released its results October 29 after the market close. Management’s statement about the dividend is an expectation, not a formal declaration of a reduced payout. The company has not announced the amount or effective date of any future cut.
Book value and market pressure
Book value fell to $14.03 per common share at September 30 from $14.83 at the end of June, a decline of approximately 5%. Management cited wider mortgage spreads and sharply higher benchmark interest rates during the quarter.
Adjusted net income attributable to common shareholders was $30 million, or $0.35 per share, compared with $32 million, or $0.37 per share, a year earlier. Adjusted earnings are a non-GAAP measure and differ from the reported GAAP loss.
Chairman and CEO David Spector said the trust is shifting capital from lower-returning mortgage servicing rights toward credit investments it expects to generate stronger returns. The company said it has sold or contracted to sell approximately $35 billion in unpaid principal balance of mortgage servicing rights in recent periods.
Dividend reduction expected, not yet declared
Spector said the trust expects to lower its current common dividend in favor of share repurchases, citing the stock’s discount to book value. The current quarterly common dividend was $0.40 per share. A reduced dividend has not been declared.
The board approved a $130 million increase in its share-repurchase authorization, bringing total remaining capacity to more than $200 million. The authorization permits repurchases but does not require the trust to buy any particular number of shares.
Credit investments and servicing-rights sales
The trust completed eight private-label securitizations during the third quarter and retained $167 million in senior and subordinate investments. It also sold approximately $13 billion in agency mortgage servicing rights and agreed to sell another $10 billion, with closing expected in the fourth quarter.
After quarter-end, the company entered into an additional agreement to sell $12 billion in agency servicing rights. Those transactions are not all completed sales and should not be treated as proceeds already received.
PMT also reported that rising rates and wider credit spreads contributed to a $48 million pretax loss on subordinate bonds from its private-label securitizations.
Why it matters
The potential dividend reduction is significant for income-focused mortgage REIT investors. It also highlights how changes in asset values, financing costs and capital allocation can pressure distributions even when management reports positive adjusted earnings.
The trust is externally managed by a subsidiary of PennyMac Financial Services, but it is a separate publicly traded company with its own financial results and dividend decisions.
Source: PennyMac Mortgage Investment Trust investor relations and October 29 third-quarter earnings release.
