I’ve been asked to comment on specific companies in the mortgage REIT (mREIT) and even narrower Agency mortgage REIT (amREIT) sectors a few times.
I’ll suppress my inner geek for now, and share a paragraph on each.
This is NOT analysis, which is something six-figure equity research types do as full-time jobs for brokerage firms. Blogging is a part-time avocation for me, and has a broader range than simply amREITs or even stocks.
It should go without saying, but this is also NOT investment advice.
NO INVESTMENT IS SUITABLE FOR EVERY INVESTOR. If you’re reading this, you might be anyone, including the investors for whom what I do with my own money or what you may think I’m recommending may be just exactly what you shouldn’t be doing.
Is that clear? You may come away from reading my blog with the conclusion that you should do or not do something with your money. It could turn out very badly for you. I don’t know you, and I can’t possibly know your situation.
Whatever you choose to do with your money is ON YOU. You pays your money and you takes your chances, as my Daddy used to say.
If any major Wall Street firm wants to use this disclaimer language instead of the three to five pages of fine print their legal department came up with, my licensing fee is very modest. It’s probably less than you pay for your least expensive employee in the legal department.
Since it’s dividend announcement season again, the comparisons between various mREITs and the amREITs in particular, is going full steam.
The spread of MBS to swaps has basically continued grinding tighter for most of this year. It’s negative, in fact. While the steep yield curve has made the carry trade very profitable on a “snapshot” basis, the management at the mortgage REITs has to deal with the fact that negative spreads to LIBOR implies that over the life of their portfolios, they could lose money.
This is the reason, in my opinion, that the stocks continue to trade near or even beneath their liquidation (book) values. While I think that is somewhat harsh, I agree that this is not Easy Al’s bond market of 2002, when investing in MBS and funding via repo was a way to make money, almost no matter how you did it.
Just for comparison purposes, amREITs levered themselves 10x or more back in 2002, and they traded up in price until they had low double-digit investor yields, which translated into multiples of book value that ranged from 1.2x to 1.5x. It was even more extreme for non-agency mREITs, which traded at higher yields, but even higher multiples of book value.
Today, the amREITs trade in a range from 0.9x to 1.1x, with a couple of outliers that I’ll explain as I take them one by one. If there is going to be any surprise this quarter, it’s going to be to the upside on book value, as the entire MBS complex is trading extremely well.
I’ll take the group in order of market cap in the following posts, and give a little more ink to the larger companies.