Dallas, Texas 09/10/2013 (Financialstrend) – The CYS Investments Inc (NYSE:CYS) stock generally trades at a sharp discount to the book value even in comparison to the other mREITs in the market. One reason for this discount has been that the company generally pays out a much lower dividend-yield. This is primarily because it largely holds 15 year MBS instead of the more common 30 year ones. This situation has been aggravated by the CYS’s horrific 2013 Q2 results. These saw it posting a shocking 21 percent Q/Q drop in book value. Year-to-date, the company has experienced a 35% decline.
The expected change
Many analysts feel that that situation will change and the company will rebound towards the end of 2013. This is primarily because the Fed tapering effects are now known. CYS’s last quarterly-dividend was for $0.34/share. This equates to a yield of 17.80%. In the latter half of 2013 April the company had made the decision to issue some preferred equity of close to $200 million.
The book value factor
Presuming that these funds were utilized for investments in Agency RMBS (as had been mentioned in the press release), the company must have lost a sizeable amount of money. In recent months, MBS prices have all but been buried underground. The MBS yields have risen to levels that have not been seen since 1994. Insufficient hedging and the ill-fated raise in capital have resulted in a big hit on the company’s book value.
Its book value dropped from $12.87 to $10.20 which is a huge 21% dip quarter to quarter. YTD there has been around a 34% drop in the CYS book value. For the 2013 Q2, CYS Investments Inc (NYSE:CYS) spread rose by 17% to 1.36 percent from the historic low of 1.16 percent from last quarter. The company’s calculation for its new-interest rate spread is a combination of the “core” and “drop” income.
