ABR - Mortgage REITs: Short-Squeeze Nightmares

• For Mortgage REIT investors, the recent "short squeeze frenzy" brings back painful nightmares. Mortgage REITs endured periods of violent volatility and "forced selling" during the depths of the pandemic.
• Imploding hedging instruments inflicted permanent damage to several mREITs, but book values continue to recover towards pre-pandemic levels for stronger REITs. Several mREITs have been caught-up in the short-squeeze-frenzy as well.
• The robust rebound and ongoing strength in the U.S. housing sector averted outright catastrophe for many mREITs. Mortgage REITs delivered a triple-digit-percentage-point rebound to end 2020 with total returns of -23.5%.
• Despite the insane volatility and wave of dividend cuts, mortgage REITs still managed to pay a dividend equating to a 7.6% yield in 2020 and the average mREIT currently pays a forward yield of over 8%.
• Mortgage REIT earnings season kicked-off last week. The 3 trends we're watching: 1) Updated dividend commentary, 2) Updated book values, and 3) Macroeconomic commentary on the mortgage and housing markets.

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