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Mortgage REITs Enjoying Favorable Interest Rates

08/06/2012 | By Allen Kenney

Uncertainty in the commercial real estate industry is creating opportunities for mortgage REIT Dynex Capital Inc. (NYSE: DX), according to Thomas Akin, the company's chairman and CEO.

Akin discussed his insights into the mortgage REIT market in a video interview with REIT.com in New York at REITWeek 2012: NAREIT's Investor Forum.

"Dynex and our whole business, in general, thrive on the uncertainty in the marketplace," Akin said.

The Federal Reserve's interest rate policy is helping to drive the uncertainty in the marketplace, according to Akin. He noted that rates have been "exceedingly low" for four years, and there has been discussion of keeping rates low beyond 2014. Dynex funds its investment through Federal Reserve financing, so the company continues to benefit from "extraordinarily" favorable interest rates, driving up its dividend yield.

In fact, Akin said, the entire mortgage REIT market is receiving a boost from low interest rates. With the problems currently facing the debt markets in the Eurozone, the general response worldwide has been for governments to cut rates or purchases assets.

"Even if the United States falls into a double-dip recession or has a contagion, that would basically inure to our benefit as those rates extend even further," Akin said.

Akin said one of the most attractive attributes of the mortgage REIT business in the current market environment is that a company can acquire assets at what he termed "reasonable" levels.

"The credit crisis has created an uncertainty in the marketplace, which allowed us to buy assets at reasonable yields, and then fund them at a very low cost through the Fed funds rate," Akin said. "We have basically started our portfolio post the credit crisis. Therefore, we have in our portfolio a large amount of our cash flow that is for the most part government-guaranteed or AAA, high-quality capital that we expect to continue to pay for the next four to five years."

Consequently, Dynex's dividend hasn't cut its dividend. "We have only grown our dividend since 2008," Akin noted.

Dynex has its headquarters in Glen Allen, Va. The company was incorporated in 1987. It invests in agency and non-agency securitized mortgage products.