Entering text into the input field will update the search result below

Quick And Dirty mREIT Discounts For 03/02/2020


  • Discounts to book value are a major part of evaluating mortgage REITs.
  • We use this series to compare the latest share price with the trailing book value per share.
  • The ideal method utilizes current estimated book values, but using trailing book values is quick and it still provides enough information to enhance decisions.
  • Prices are from 03/02/2020 after the market closed. Trailing book values are as of 9/30/2019; our subscriber version of this article uses estimates of current book value.
  • The public Quick and Dirty series will use BVs from 9/30/2019 until each mortgage REIT covered in the series has reported earnings for Q4 2019.
  • Looking for a helping hand in the market? Members of The REIT Forum get exclusive ideas and guidance to navigate any climate. Get started today »

One of the most important steps in evaluating mortgage REITs is finding the price-to-book value ratios. Using the mortgage REITs' book value gives us an idea for the general range where the mortgage REIT should trade. We expect that all mortgage REITs holding similar assets will generally be correlated with each other.

If you see several mortgage REITs trading at 15% or greater discounts to book value, you should expect comparable mortgage REITs to also trade at material discounts to book value. If a few are trading at premiums while others trade at huge discounts, it usually represents an opportunity.

The mREITs

I put most of the residential mREITs, two ETFs, and one ETN into the table:


American Capital Agency Corp.


Arlington Asset Investment Corporation


Anworth Mortgage Asset Corporation


ARMOUR Residential REIT


Cherry Hill Mortgage Investment


Capstead Mortgage Corporation


Annaly Capital Management


Orchid Island Capital


Dynex Capital


Chimera Investment Corporation


Ellington Financial Inc.


Invesco Mortgage Capital


MFA Financial Inc.


AG Mortgage Investment Trust, Inc.


Two Harbors Investment Corp.


Western Asset Mortgage Capital Corp.


New York Mortgage Trust


New Residential Investment Corp.


PennyMac Mortgage Investment Trust


iShares Mortgage Real Estate Capped ETF


VanEck Vectors Mortgage REIT Income ETF


UBS ETRACS Monthly Pay 2x Leveraged Mortgage REIT ETN

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.

Price-to-Book Value

We are using the total book value per share under GAAP. It includes intangible assets, but those are relatively rare. The notable inclusions are for AGNC and NYMT, both of

Want the best research? It’s time to raise your game. Get access to several features you won’t find on the public side.

You can get access to everything we have to offer right now. Try our service and decide for yourself.

This article was written by

Colorado Wealth Management is a REIT specialist who began his decades-long investment career in a family-owned realtor office before launching his own company and embracing his drive for deep-dive REIT analysis. He holds an MBA and has passed all 3 CFA exams. He focuses on Equity REITs, Mortgage REITs, and preferred shares.

He leads the investing group The REIT Forum. Features of the group include: Exclusive REIT focus analysis, proprietary charts and data models, real-time trade alerts posted multiple times a month, multiple subscriber-only portfolios, and access to the service's team of analysts and support staff for dialogue and questions on the REIT space. Learn more.

Analyst’s Disclosure: I am/we are long ANH, AIC, IVR-C, MFA-B, TWO-D, NLY-F, ARR-C, AGNCP, NLY-I, CMO-E, MFA-B, AGNCO, MFO. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (21)

NotARetiree profile picture
"We’re also bearish on the major ETFs, REM and MORT."

Worst call ever and just before the 50bp cut. Ride the steepening curve.

Colorado Wealth Management Fund profile picture
I think readers can trust our opinion. We haven't endorsed buying anything only to watch it go to $0. That doesn't sound like a high bar, but it is worth mentioning here.

On February 21st, 2018, HighYieldKing announced "Bought RAS today".

Adjusted for the 50 for 1 reverse split, that position would be down over 99% so far. Along with the reverse split, they changed their ticker from RAS to RASF. However, you stayed bullish on them.
On January 11th, 2019, HighYieldKing writes:
"A bit of short covering for RAIT. Glad I bought more RASF at 70 cents a few weeks ago."

So what happened to RASF? How could it be down over 99%?

In an article from September 6th, 2019, Paolo Gorgo writes:
"Last Friday, RAIT Financial Trust (OTCQB:RASF) (OTCPK:RASFQ) filed for Chapter 11 - just ahead of a long weekend, and on the exact day its 7.125% Notes (RFTA) were due for redemption."

So this second investment in RASF is also a pretty much total loss. That's two investments, assuming those were the "only" buy dates that went to roughly $0. I've had a few calls that didn't work out great, but nothing going to $0.

We had the opportunity to pick RASF also. However, instead of telling investors to buy it, we wrote:
"This REIT's Common Dividend Is Garbage, Preferred At Risk".

We followed that up with:
"RAIT Financial Trust and the Dead Dividend Walking".

Those aren't the meanest quotes about RASF in those articles, they were the titles. We went for the jugular with quotes like:
"All consolidated revenues cannot cover interest expense, property management costs, real estate operating expenses, compensation, and other G&A. With no extraordinary items, such as the provision for loan losses, the IRT internalization, or shareholder activism expenses, the income statement would be at a net loss before accounting for a single cent going to a preferred shareholder.

The problem with RAS isn’t simply the balance sheet showing negative common equity - it is recurring losses that are built into the operating structure. This isn’t a simple fix, because the problem is at the very heart of the REIT."

The article went on to say:
"I began looking into RAS because a subscriber inquired about it. Within the first couple hours, it became clear to me that the common was most likely going to end up in the garbage heap. Common equity already is negative, and we haven’t even started giving out bonuses for demolishing shareholder wealth (payments due on termination without “cause”). A look at the income statement indicated that even preferred dividends were unsustainable. If the preferred dividends were cut, the company could survive much longer. Instead, they are still paying them and declared a common dividend. The covenants on the baby bonds were designed to prevent this, but those covenants were later changed.

RAS appears headed for bankruptcy fast. They can forestall it for quite a while if they slash their cash outflows, such as common and preferred dividends. Another analyst believed RAS might have much better income statements in the future, but his analysis kept the consolidated revenues while ditching the associated expenses. I do not believe that is remotely probable. I do not believe the company can monetize existing positions for enough capital to leverage into recreating the same level of revenues through the new platform."

That was in August 2017, it was about 6 months before you purchased your FIRST position. So you had access to our research but decided to ignore it.

It's not like the analysis was particularly hard. We pulled out the income statements for each article and demonstrated how RASF couldn't make money. We even used bright colors to draw on the income statements as we explained the fatal flaws.

We wrote:
"For common shareholders to expect a dividend, net interest spread income needs to exceed $50 million per year. That is the minimum level necessary to cover the company’s targeted annual operating expenses of $25 million plus $25 million in preferred dividends. As of the second quarter, the annualized net spread income would’ve been less than $18 million."

So your position was buying into a mortgage REIT with net spread income which couldn't even cover paying management and with negative book value. That's the expertise you're offering to my readers as you critique my work.

This will be my copy and paste response to your comments from now on.
Puzzzled profile picture
Damn! Now that's a response. I'm not certain it was worth your time, but it sure must have been satisfying to write.
whiplash542 profile picture
This article is VERY useful. I’ve owned a bunch of STWD and BXMT for a long time, but I sold all of them yesterday afternoon. I just can’t see how they will make money. I do own some of the preferreds you mentioned, so your article is reassuring.
thank you CWM. I wonder why are you not covering ARI.
Colorado Wealth Management Fund profile picture
I used to cover it. I moved to handle more equity REITs and preferred shares. I write up a brief opinion on mortgage REITs when Scott Kennedy is covering that REIT for our service.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.