Mind on Money

amREIT Nirvana Update

October 4, 2011 at 2:02 pm | Posted in wall street | 1 Comment

Today I received a note from Merrill Ross at Wunderlich pointing out the likely reason for the current deep discounts in the mREIT sector.  It’s especially strange that the “pure” amREITs have gotten whacked so hard while the underlying portfolios have increased in value.  There’s no prospect of an inverted yield curve (poison to the spread carry maturity mismatch business model).

From Merrill’s note today:

” There is no crisis more capable of inflicting damage than a liquidity crisis. We believe that the central banks stand ready to manage the potential of sovereign default, and that the banking system will not grind to a halt. We believe there is some potential for disruption, but limited potential for counterparty risk to result in permanent equity erosion among the mortgage REITs. For investors with a risk tolerance, today’s pricing levels represent an opportunity. Never before in history have the mortgage REITs traded at a discount to book value when the curve was positively sloped, and if this liquidity risk is more of a fear than a reality, there could be significant price recovery from current levels”

I’ve got join her in guessing that investors are selling their mREIT and amREIT stocks through fear that the domino theory of chained insolvency will hit repo providers who finance the Agency MBS in the amREIT portfolios.

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