mREIT Preferreds - No Fluff Weekly Recap, January 15, 2017

by: Rubicon Associates


Week 2 of the mREIT preferred weekly recap.

The universe is $0.02 better this week, shaving 1 bp off the universe stripped yield.

8.34% at a buck under par can be had in the sector.

For the second week, I am doing the mREIT preferred "no fluff" weekly update. Readers seemed to like it, so until I am told it adds no value, I will continue doing it. The purpose behind this is to put all the relevant information in one place, a "one stop shop" on mortgage REIT preferred stocks. I started doing this for my purposes, but many readers seem to like the no fluff approach, data heavy, fluff light.

The universe as of Friday, January 13, 2016:

Note that I have kept Drive Shack (NYSE:DS) in, despite their transition to an entertainment C corp. I will drop them due to this if readers believe it to be more appropriate.

The "culled list" with the top selection of each name. As a reminder, the top choice is a combination of stripped yield (as the majority are below par, the yield-to-call will be less of a factor), time until call and the price:

RAIT Financial (NYSE:RAS), Five Oaks (NYSE:OAKS) and Resource Capital (NYSE:RSO) continue to have the highest yields given their performance history and business model.

Personally, I have preferred exposure to AG Mortgage Investment Trust (NYSE:MITT), Five Oaks (higher risk, lower weight position), New York Mortgage Trust (NASDAQ:NYMT) and CYS Investments (NYSE:CYS). I have equity exposure to Annaly (NYSE:NLY), MTGE Investment (NASDAQ:MTGE) and CYS.

Data expressed graphically:

Stripped yields:

The spread between the equity dividend yield and the stripped yield of the preferred:

The "give" for stability is, on average, 214 basis points. Resource Capital continues to be an outlier.

The spread to risk free:

The higher the spread, the higher the perceived risk and the need to compensate for the risk.

The next table shows the change in price from the prior week (importantly, not the stripped price) and the distance from the 52-week high and low. I have also added in the change in price of the equity over the last week to compare the preferred and the equity. This should help discern whether it was systemic (all down or up and magnitude) or idiosyncratic (one shoots up or down).

Distance from high and low graphically:

A view of the equity:

Equity one year returns, graphically:

Going forward, I am thinking about adding more market data such as swaps rates, Treasury rates, etc., just to get a decent "driver overview". Would love to get thoughts on this as well as the usefulness of the weekly piece generally. This is a work in progress with the goal of providing investors consistent data on preferred sectors - a one stop, no fluff shop.

Disclosure: I am/we are long NLY, MITT, CYS, NYMT, OAKS, 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.

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.

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