Disappointed in ANH

For a couple of years I have taken a lower return from Anworth than my other mREITs simply because they are so conservative.  If you listen to the hard money folks or watch the perennial game of chicken the politicians we elected in 2010 play with our national credit rating, it’s a non-trivial risk that we could wake up one day and find the 10-year Treasury note trading at 5% rather than 2%.

Just ask the Europeans how that feels.  If that were to happen, then the fully hedged amREITs will survive, but the ones playing the duration gap too aggressively may not.

Still, the announcement from ANH that they are converting to “externally managed” is not in my best interest as a retail shareholder.  These arrangements are typically set up so an affiliated company owned by the management provides asset management for a fee.

Historically, smaller, newer mREITs did this because their manager is a successful fund management company that can afford to carry the staffing levels the mREIT needs, without making the small ($300 million or lower equity) mREIT carry the whole load.  Also, it gives the sponsoring asset management company the option of boosting shareholder return by forgoing the fee.  (I remember Blackrock doing that for the first several years I owned their commercial mREIT, Anthracite.)

Going the other direction when shareholder equity is above a billion dollars is simply not in the mREIT playbook, and with good reason.  With a billion dollars equity under management, an amREIT can manage itself internally for cost in the 1% per annum neighborhood.  That $10 million a year is sufficient to keep the staff they need (20 to 30 people), and incentive compensation in the form of restricted stock or long-vesting options can provide the kind of pay package that rewards the management team with a comfortable life and affluent retirement.

Color me disappointed, and out of my remaining ANH stock.

hh

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4 Responses to Disappointed in ANH

  1. elijahwc says:

    Note that NYMT took the other path this weekend!

    • hhill51 says:

      Good for them….. I have a small position there bought about a buck below current prices. Still waiting to see what they become after meeting with them a few years ago. Like the involvement of Jim Fowler (formerly my favorite amREIT analyst until he moved into asset management and principal investment), but there have been a couple of distinct shifts in strategy since that meeting.

  2. BarryZee says:

    Howard, I’m not selling my small position, but this will make me less likely to add to it. ANH has been attractive only because its valuation has overcompensated for its mediocre portfolio management and thus has held it to a more attractive P/BV.

    • hhill51 says:

      Hi, Barry….

      Good to hear from you, Barry. Happy New Year.
      In my year-end portfolio review, one of the dogs that I’ve stuck with (even added) was that Canadian miner you pointed out some time ago. Do you still like it? Give a call when you get a chance.

      hh

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