Comparing the 8 Largest Mortgage REITs

by: Parsimony Investment Research
We recently published an article, Finding Yield in a Price Rich World: 2 Recommended REITs, discussing our bias toward Annaly Capital Management, Inc. (NYSE:NLY) and MFA Financial, Inc. (NYSE:MFA). To recap, the bias is due to the tenure of the management of these companies and our belief in their ability to manage the balance sheet in an uncertain interest rate environment.

Below is a more detailed overview of the largest mortgage REITs and the metrics investors should keep in mind when investing in mortgage REITs. Investors would should focus on the portfolio of

  1. Agency vs. Non-Agency;
  2. Fixed vs. Floating/ Adjustable; and
  3. leverage deployed.

We hope the metrics below help investors understand the strategies of REITs market participants.

We remain positively disposed to NLY and MFA due to their size, leverage profile, composition of investments, and most importantly tenure in the mortgage market space.
A Real Estate Investment Trust (“REIT”) is a company that specializes in owning real estate, interests in, or loans secured by real estate. A REIT enables retail investors to obtain the benefit of a diversified real estate portfolio under professional management without the need to invest substantial capital, through the purchase of liquid securities.
As with any asset management company, a primary investment focus should be on the manager itself.
A Note on Book Value

As REITs are required to distribute a minimum of 90% of their taxable income to shareholders as dividends, there is a limitation on the company’s ability to retain earnings because of the 90% distribution requirement. Thus REITs oftentimes issue new equity when the stock price trades above book. Investors should be mindful of investments at significant premiums to book value.

Disclosure: I am long NLY, MFA.