Quick And Dirty mREIT Discounts From November 20th, 2016

by: Colorado Wealth Management Fund


Last week I picked up shares of RSO and RSO-B when the market freaked out on the earnings release.

This is the first table built using BVs from the end of the third quarter for each mortgage REIT.

I adjusted discounts for the last several weeks to reflect the third quarter BV, so changes are retroactive.

I’m going to tap NLY with another buy rating.

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

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.


Sutherland Asset Management


Apollo Commercial Real Estate Finance, Inc.


Five Oaks


AG Mortgage Investment Trust, 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.

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.

The gain relative to the end of October is interesting because it does not feel like there was that much of a gain. This may be a case where it specifically relates to which mortgage REITs I'm following closest.

Table 2

Table 2 helps us assess the change during the quarter and for the month so far:

The worst performers by a mile from Q2 to now are Annaly Capital Management and Resource Capital Corporation. Those are both in my portfolio as well. For the case of RSO, the situation is even stranger since their BV dropped substantially from the end of Q2 to their latest numbers from Q3. A weaker price to trialing value ratio combined with a decline in book value speaks to the huge magnitude of the price decline in RSO. I remember when shares were trading around $13.40, but I scooped mine up at $7.88. That's right, I finally went long RSO. The public article was published a day later.

Annaly Capital Management

This merits another buy rating. Annaly Capital Management closed the week at $10.00. I find it very attractive there. You can put me down for reiterating the buy rating on Annaly Capital Management. Yes, it was overvalued in the summer months. However, it came down to trade at much more reasonable ratios lately.

Arlington Asset

AI is on a tear. They might have a solid portfolio for this situation, but I don't think the rally is warranted. If I get the time I'd love to dig deeper into their portfolio, but time has been one area where I'm running quite short.

CYS Investments

CYS got hammered lately. Rates went up and CYS tends to position for low rate scenarios. Given the rate movement, the pain in CYS should not be a surprise.

My Positions

I am long SLD, ANH, NLY, DX, RSO for the common stocks mentioned in this article. I'm also long Bimini Capital Management (OTCQB:BMNM). For preferred shares, long AGNCB, NLY-D, CMO-E, RSO-B.

Want to Know More About Mortgage REITs and Preferred Shares?

The Mortgage REIT Forum is a new exclusive research platform. Rates will go up soon, but I'm still allowing subscribers to automatically lock in their rates when they purchase a subscription. Those subscriptions are only $240/year. How do subscribers earn their money back? How about getting a call out just past 10AM Eastern time (about 10:03AM) that RSO was on sale? They had the opportunity to buy just before me and I got in at $7.88. This trade is up just over 20% in one week. Want more? How about the call out on the preferred shares of RSO. I called it out before acquiring RSO-B at $20.40. Those shares ended the week at $21.94, up 7.5% in a week. You want examples with a different REIT? A couple weeks ago I flew through the earnings release on DX and was able to call the bottom with buy ratings at $6.60 and a couple hours later at $6.50. Shares are up just over 5% from $6.50 and 3.5% from $6.60. I won't find every bargain and deals like RSO tend to only come around one to three times in a year, but I'm letting the record of calls and investments be my advertising.

Disclosure: I am/we are long SLD, ANH, NLY, DX, RSO, BMNM, AGNCB, NLY-D, CMO-E, RSO-B.

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.