Seeking Alpha

REIT Analyst

 
View REIT Analyst's Comments BY TICKER:
  • Armour Residential REIT: Agency Security Fund Or Market Speculator? [View article]
    There is no reason why home price appreciation could be a major driver of ARR's value. It's really disconnected. The only effects though which home prices could matter are:
    - Stronger home price growth implies marginally faster prepays on pools that have no more incentive to refi. So deep discounts might pay at 7 CPR vs 5 CPR if HPI is strong. Not a big impact, but marginally positive
    - Stronger home price growth means larger net supply of MBS (since obviously each prepay = paydown = also a new loan being produced, the only net growth is due to total housing stock value going up). Bigger supply, a slight negative for MBS prices in the long run => marginally negative.

    So it seems to me that looking at home prices in order to form an opinion on ARR is really missing the forest for the tree.
    Jul 26 06:10 AM | 7 Likes Like |Link to Comment
  • Armour Residential REIT: Agency Security Fund Or Market Speculator? [View article]
    When bond prices are high (low rates), fast prepayments are bad. When bond prices are low (high rates) slow prepayments are bad. It's not so much the absolute speed in prepays that is bad, it's the fact they change in an adverse manner as rates move. In the current situation the issue will be that the low coupons trading under par held by ARR will see very slow prepays => bad.
    Jul 26 06:06 AM | 2 Likes Like |Link to Comment
  • Armour Residential - Book Value Estimate Leads To Further Downside [View article]
    Looks like now ARR is getting closer to its real value (~5.88 right now)
    May 14 02:15 PM | Likes Like |Link to Comment
  • Armour Residential - Book Value Estimate Leads To Further Downside [View article]
    Southgent, thank you for your detailed comments.
    I did try to recoup BV calculations using ARR's monthly updates. Unfortunately there is simply not enough information on the value of the hedges, and the way they give net repos is ambiguous: it is not really possible to determine how to recoup the month's paydowns with their cash equivalent holdings. There was too much uncertainty there. Even though I tried to infer BV from various bon market prices and cash flows, without detailed knowledge from the bonds they own, I thought that was still much better (less room for error) than using their monthly updates.
    Regarding the secondary offerings, as I mentioned above for the commons I considered they were not dilutive/accretive, given that they priced closed to the then-disclosed BV.
    As for the preferreds, which of course reduce the BV available to the commons due to their senior position, I just did not factor them conservatively (ie for my thesis here).
    Mar 19 05:40 AM | 1 Like Like |Link to Comment
  • Armour Residential - Book Value Estimate Leads To Further Downside [View article]
    Re. the discount: opacity. No information about what they are doing, why, and how they managed to lose a noticeable amount of BV.
    Mar 18 01:01 PM | Likes Like |Link to Comment
  • Armour Residential - Book Value Estimate Leads To Further Downside [View article]
    pg, thank you. I considered the idea that the prior BV would have been overstated, and that could have been an explanation on non-agency MBS maybe. However, for agency specified pools it is difficult to believe that there could be such a valuation discrepancy. These are pretty liquid securities, and dealers are quite good at pricing them.
    For example, most dealers send out quotesheets where they give prices/payups on various types of specifieds. In contrast, I have never seen anything equivalent on non-agencies because it's too variable. So I just don't think one can misprice these agency MBS so much.
    Mishedging them, however, that's a more plausible explanation in my opinion.
    Mar 18 11:43 AM | 1 Like Like |Link to Comment
  • Armour Residential - Book Value Estimate Leads To Further Downside [View article]
    I conservatively assumed they were not dilutive, because there is not enough info to figure it out really. The BV I took as a starting point was the one they published the day of the secondary (right before). Hence, not much effect presumably.
    Mar 18 11:28 AM | Likes Like |Link to Comment
  • Armour Residential - Book Value Estimate Leads To Further Downside [View article]
    "Sounds a lot like someone trying to short." -- that's not correct, I am short, not "trying to short".
    Regarding the book value, I would encourage you to read up ARR's latest officially provided BV: http://bit.ly/143ogox.
    The 7.31 number you quote is, I think, as of year-end 2012.
    Mar 18 11:14 AM | 2 Likes Like |Link to Comment
  • Undervalued, 13.2% Dividend Payer Armour Residential REIT May Be Due For A Rebound [View article]
    insider buying... Yes, ARR's CEO owns about $280k worth of stock. Significant position vs management fees you think? How much do AGNC's management own, for comparison?
    Mar 17 01:58 PM | Likes Like |Link to Comment
  • Undervalued, 13.2% Dividend Payer Armour Residential REIT May Be Due For A Rebound [View article]
    The 7.47 BV you report, from ARR's website is actually provided by morningstar (read the small size font footnotes at the bottom of the page), and provided with no guarantee that it's correct etc. According to that information it's the latest quarterly BV published by ARR.
    However ARR also published an official updated BV when they did their secondary last month: http://bit.ly/15TMS1q
    There it is 6.70 BV...
    Interesting how they vaporized over 60c in BV over a couple of months.
    Disclaimer: I'm short the common, long the preferreds
    Mar 17 05:21 AM | 2 Likes Like |Link to Comment
  • Avoid Armour Residential [View article]
    100% agreed w/ CorvetteKid, these holdings represent nothing relative to management fees. I wonder if they are just cosmetic. Disclaimer: I'm short ARR.
    Mar 14 06:18 PM | Likes Like |Link to Comment
  • Should We Worry About Armour Residential REIT's Recent Price Decline? [View article]
    Buying non agencies is a little more involved thn rolling up your sleeves. The systems, models, market etc are very different from the agency market. It's not just a question of deciding to get into that market.
    Nov 15 06:28 PM | Likes Like |Link to Comment
  • Should We Worry About Armour Residential REIT's Recent Price Decline? [View article]
    Jeffrey,
    I command you on this well written article. You are looking at it with the right angle I think.
    There are a couple things that could be adjusted (namely: using MBS yields vs a combo of Libor and swap rates instead of the 1s-10s, factoring in the relationship between rates and prepays, and the richening of MBS independent of rates...), but this is very refreshing after all the embarrassingly uninformed or flawed articles I have recently read on the subject.

    One thing that I believe is worth pointing out:
    You were asking "should we worry about ARR's stock price decline". Beyond the obvious reason to worry if you're long and losing money, it's worth asking if the fact that the stock falls could negatively affect the business itself.
    A "normal" corporation that builds or sells things can suffer if its stock price is falling because that will likely affect its ability to fund growth. Also a typical corporation cannot sell its assets liquidly in a few hours, and hence can have a hard time buying its stock back if it feels the drop in share value is unfar relative to the estimated value of their assets.
    In the case of an agency REIT however the assets are extremely liquid, and hence the difference between book and share value can be arbitraged very quickly. In addition, a REIT does not need to grow in order to be more competitive;it's actually rather the contrary -- too big => tougher to find attractive bonds in size.
    Hence I think that an agency mREIT is really insulated from the negative feedback loop that could impact a "typical" corporation. So form that standpoint, a drop in stock prices is not a reason to worry in and by itself.

    As a side note ARR just published significant insider purchases from earlier today it seems (when the stock was under 6).
    Nov 15 01:34 PM | 4 Likes Like |Link to Comment
  • Armour Residential: A Double-Digit Yield Opportunity In The mREIT Market [View article]
    To me, an article on mREITs that does not address residual duration, negative convexity, hedges in place, and some analysis of the RMBS holdings (especially vs peers) is probably missing the point entirely.

    As a side note, I wonder what this statement brings in terms of analysis. Is there any agency mortgage REIT out there for which this is not applicable?
    "Armour usually tries to hold most of its agency securities for long term. The company may, from time to time, sell any of its agency securities as part of its overall management of portfolio. Management decides the suitable classifications of the securities at the time securities are acquired. In addition, management also evaluates the suitability of such classifications at each balance sheet date.

    Armour finances the acquisition of its agency securities through repurchase agreements. Agency securities are subsequently used to secure the repurchase agreements. The interest rate on these repurchase agreements usually corresponds to the Federal Funds Rate and the London Interbank Offered Rate [LIBOR]. Under the repurchase agreements, the company sells securities to a lender and agrees to repurchase the securities in the future for a higher than original sales price. The difference between the sales price that the company receives and the repurchase price that it pays represents interest paid to the lender. At the moment, spreads are quite high due to the low interest rates. Thanks to this atmosphere, the company receives high rates on its investments but pays a lower interest rate on its borrowings."
    Oct 3 12:23 PM | 2 Likes Like |Link to Comment
  • Armour Residential: 14% Yield And Monthly Payments Even After 10% Dividend Cut [View article]
    There are a few things I find intriguing in your article:

    "We like the fact that Armour Residential has seen rapid growth in its assets from $127M in 2009 to $13.9B in H1 2012."
    Why is that good? It would seem to me that the smaller the better, the only limit being the fixed costs in running the REIT. When you have to invest 100bb it's a lot tougher to find attractive bonds. If you invest 500mm you're a lot more likely to be able to buy oddlots/specifieds. Look at NLY's prepay profile vs the smaller players.

    "So how did that work out for Bimini? It did not work very well at all! The transaction took place as the yield curve was narrowing, which reduced net interest income margin."
    So you attribute Bimini's business blowing up to the curve flattening?? It would seem to me that the main issue for any mortgage originator in 06/07 has been the crash in whole loan values and basically the death of the originate to sell business model.

    "the company's assets have grown from $127M in Q4 2009 to $13.9B in Q2 2012. This represents a 62% compounded average quarterly growth rate over the last 10 quarters and has enabled the company to generate the necessarily scale to compete against the industry's big boys like Annaly (NLY)"
    This is not Procter and Gamble, and they're not selling shampoo. What exactly is the notion of "competition" between two mREITs??? Are you saying they are competing to sell their products? Rather, if at all they would be competing to buy their products, but then the bigger one will have the harder time.

    "We also like the fact that its CPR ratio in the most recent quarter was actually better than that of Gary Kain's mREITs (MTGE and AGNC)"
    This is in the right direction, but have you taken a look at the composition of their portfolios? Without controlling for the product distribution it makes no sense. ARR holds some ARMs, that will necessarily make the prepay speeds faster. Is it worse for it? ARMs trade at much shorter durations and have less negative convexity, and trade at less of a premium, relative to 30-yrs for example. So their faster speeds are absolutely not a negative.

    I apologize if my tone is a bit negative, but it does feel like there are too many stories on mREITs written without any regard for factual analysis.
    Oct 2 09:46 AM | 3 Likes Like |Link to Comment
More on ARR by REIT Analyst
COMMENTS STATS
472 Comments
579 Likes