Quick And Dirty mREIT Discounts From April 1, 2016

by: Colorado Wealth Management Fund


Some investors like to throw around the discount to the last quarter’s book value.

The measure can be useful, but it should be observed with great care.

To dramatically enhance this kind of analysis I estimate book values throughout the quarter for several mREITs.

Large discounts across the sector or excessively hitting one company should not be viewed as a market failure without substantial due diligence.

I covered the quick and dirty discounts to book value previously and found it was a hit with investors because it allowed them to rapidly get a rough idea of which mREITs they might want to investigate further. If you haven't seen the original piece, it is worth a read simply for the cautions provided regarding the excessive reliance on discounts to a past value.

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


Apollo Residential Mortgage

To Be Bought by ARI


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


Javelin Mortgage Investment

To Be Bought by ARR


MFA Financial


American Capital Mortgage Investment


Annaly Capital Management


Nationstar Mortgage Holdings

Not a REIT


New Residential Investment Corp


New York Mortgage Trust


Orchid Island Capital


Resource Capital Corporation


Starwood Property Trust


Two Harbors Investment Corp


Western Asset Mortgage Capital Corp.


ZAIS Financial


Apollo Commercial Real Estate Finance, Inc.


iShares Mortgage Real Estate Capped ETF

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.

Big Table

The following table contains most of the information, though part of the table is built with calculations that are not demonstrated within the table:

I added the light blue coloring simply to help readers scan the chart faster while keeping their eyes on the intended line. The green squares for two headings are included to emphasize that these are some useful metrics that can be analyzed with more certainty about their values.

The prices used are from the end of the day on April 1 st, 2016. It should be no surprise that this kind of calculation can be done dramatically faster than the updated book value estimates for the end of the quarter. However, I am working on getting some of those estimates out as well and expect to have quite a few over the next few days.

Theoretically the companies should be covering the dividend with their net interest income, but I attempt to provide the numbers with and without the impact of the dividend.

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, but occasionally I had to pull up the 10-K documents and calculate it.

Quick Impressions

In general mREIT book values are down in the first quarter. In my early estimations of updated book values for new interest rates as of the end of the quarter it looks like 4 of the 5 mREITs I'm covering are probably going to be demonstrating lower book values for the end of Q1 than the end of Q4.

In a Nutshell

Investor focused on discounts to last book value would want to start their research on AI, CHMI, NSM, MTGE, NYMT, RSO, and ZFC.

Don't bother with JMI, they already set up a buyout with ARR.


This should be a start to the research rather than an end. The disparity in discount to Q4 book value across the sector is fairly substantial. The difference in discounts can reflect a few very different factors. While they can be indicative of a market failing, they can also indicate substantial problems with the company or expectations that the book value is going to take a huge hit.

My view on the sector is strongly concerned about share prices increasing substantially during Q1 while fundamentals deteriorated.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ANY OF THEM over the next 72 hours.

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.

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