Quick And Dirty mREIT Discounts From October 15th, 2016

by: ColoradoWealthManagementFund


If you’re a regular reader of this column, simply hop down to the bolded title of “Table 1”.

Several sources of financial data no longer function properly. Double check all your sources before placing any trades. (Beware Google Sheets) Googlefinance() is not working lately.

Common stock saw a bounce back during the weak, preferred shares of mortgage REITs declined.

If you have any challenges reading the charts in this article, check out the first article on quick and dirty discounts to book value for mortgage REITs. This piece is designed to be short and to emphasize providing easy charts that help investors identify opportunities for further inspection.

The mREITs

I put most of the mREITs, two corporations, and one ETF into the table because I wanted to get a more complete estimation.


American Capital Agency Corp


Arlington Asset Investment Corporation

Not a REIT


Anworth Mortgage Asset Corporation


ARMOUR Residential REIT


Blackstone Mortgage Trust


Cherry Hill Mortgage Investment


Chimera Investment Corporation


Capstead Mortgage Corporation


CYS Investments


Dynex Capital


Ellington Residential Mortgage REIT


MFA Financial


American Capital Mortgage Investment


Annaly Capital Management


New York Mortgage Trust


Orchid Island Capital


Resource Capital Corporation


Two Harbors Investment Corp


Western Asset Mortgage Capital Corp.


ZAIS Financial

To be "purchased" in a merger


Apollo Commercial Real Estate Finance, Inc.


Five Oaks


AG Mortgage Investment Trust, Inc.


iShares Mortgage Real Estate Capped ETF

Click to enlarge

The goal here is to have a fairly large sample size so we can identify trends and similarities throughout the sector. The mREIT sector only contains about 25 total organizations but the investing and hedging strategies have very material differences.

It is also worth emphasizing that I opted to use the GAAP book value for each mREIT. Most of the time this was available from the earnings release.

I want to emphasize that GAAP book value is not necessarily the metric that I believe is most relevant. For CIM, I believe the "economic book value" provided by management is an excellent tool. CIM's economic book value was materially lower than GAAP book value.

Table 1

If you're primarily using this article for the quick discounts to book value, use the column with the red heading in this table.

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After a large retreat in the prior week, there was a small bounce back over the last week. However, some values for last week may be inaccurate as I found some sources can no longer return accurate price data. It should be no surprise that other metrics, such as book value, are regularly wrong for most companies in this sector. However, seeing major data providers fail to provide accurate pricing data was a disappointment. This is a strong case of "buyer beware" and reflects another reason these data providers claim they are not responsible for providing bad data.

For example, check the price on ARMOUR Residential REIT through Google Finance. Last price is listed as $21.85. The last price is actually $22.02.

The Federal Reserve offered some commentary on Friday. I'm still working on some articles on the macroeconomic implications. Yields moved higher and the curve became steeper. I'm fine with both of those developments. The mortgage REITs held hedges for years and lost a ton on the interest costs of those hedges as well as mark-to-market adjustments. Now they are finally helping.

Table 2

Table 2 helps us assess the change during the quarter.

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Notice the largest decline was for Annaly Capital Management. I recently raised my rating. I also found a great opportunity in their preferred stock. After the call out went public, the opportunity was materially reduced.

Huge increase in the ratio for Arlington Asset Investment Corporation on the quarter, but it wasn't so great over the last few weeks. The biggest increase over the last week was Orchid Island Capital after they released their BV. Their announced BV came in about $.10 shy of my estimates. The very positive reaction by the market implies that most investors were very impressed and have no idea how much BV has been created over the quarter. This could bode very well going into earnings season.

In a twist that even surprises me, I picked up some NYMTO. That is one of the preferred series for New York Mortgage Trust. Go figure. I've been one of the harsher analysts on the company, but I'll grab value wherever I see it. I don't expect to hold that position for long.

My Positions

I am long MTGE, ZFC, ANH for the common stocks.

I also own shares of AGNCB, AGNCP, NLY-D, NLY-E, and NYMTO.

I am contemplating changing some positions so I may buy or sell anything.

If you want to get my best research and early access to some of my REIT articles, consider joining The Mortgage REIT Forum. For the cost of one lunch per month, you can get access to the research I'm using for managing my own investments. Subscribers also receive real time alerts when I see the liquidity failing on individual securities.

Disclosure: I am/we are long AGNCB, AGNCP, NLY-D, NLY-E, NYMTO, ZFC, ANH, MTGE.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. This article is prepared solely for publication on Seeking Alpha and any reproduction of it on other sites is unauthorized. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.