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Mortgage REIT Carnage | Seeking Alpha

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There are two things to reject. They are forced to pay more for inferior REITs and use Getty Images.

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Be prepared, as charts, images and tables are better than words. The evaluations and outlooks emphasized here are: Scott Kennedy Weekly Updates At the REIT forum. Sincerely. Comments with suggestions.

The market was raging in June. The excitement is still going on in July. We saw some big price fluctuations and some big rate fluctuations. Let’s take a look at some recent events.

The yield curve is reversed with a 2-year rate of 3.128% and a 10-year rate of 2.95%. It’s not pretty:

Treasury interest rates today

MBSLive

Does that mean the mortgage REIT is dead? No. Investors often exaggerate the importance of the yield curve. Mortgage REITs are extensively hedging and have a significant impact on the outcome. The reversal is not good for investor sentiment and does not reflect the wonders of how to handle interest rates, but it does not cause the death of a mortgage REIT.

what else? Arlington Assets has moved from the Agency category to the Hybrid category based on asset changes.

Capital South West (CSWC) And Newtek coverage removed ()Newt) Because NEWT is no longer a BDC.

Western Asset Mortgage Capital conducted a 1:10 reverse stock split. They have had a great time since the pandemic.

News for the second quarter of 2022? Orchid Island Capital (ORC) Announced that most of the book value has been lost. It fell from $ 3.34 to $ 2.87. This is down about 14% quarterly. Impressed? me neither. Of course, if you own a stake in ORC, you must have always ignored telling investors to simply withdraw.

Scott posted a review of the announcement from ORC just hours after its release. Here’s a portion of his commentary (which was longer than this article):

Unlike most agency mREIT subsector peers, as mentioned in the chat features of this marketplace service and recent mREIT discussions in previous chat notes / ratings articles, ORC will be very aggressive throughout 2021. Raised funds. Within each company’s investment portfolio in 2021 (correctly predicting that MBS prices are likely to fall), the ORC goes in the opposite direction, with fixed rate agency MBS and interest only in 2021 (“IO”). ) Securities were actively purchased. ORC quickly “reversed the course” in the first and second quarters of 2022 as MBS prices for fixed rate institutions fell sharply and significantly as they continued to “go forward” during the fourth quarter of 2021. I had to do it. In particular, last year’s expansion of ORC’s MBS / investment portfolio was only untimely by management (I knew there would always be a qualitative tightening). This particular strategy negatively impacted ORC’s quarterly BV results as spread / basis risk increased significantly throughout the first quarter of 2022 and remained elevated during the second quarter of 2022.

How well did the ORC strategy work? When the ORC provided an estimated return on total shareholders’ equity for the first quarter of 2022, it was projected to be -19.5%. This is based on a book value of $ 3.34 and turned out to be correct. Simply put, it was followed by a quarter of two trash.

According to our estimates, the current book price at ORC is comparable to the current book price. DX.. How interesting is it? DX shocked investors with rising book values ​​in the first quarter of 2022. To be fair, these estimates are always inaccurate. We have a very good idea about ORC’s BV at the end of the quarter, but we’re still working on DX forecasts and the portfolio may have changed during the quarter. Anyway, I think DX is a better choice for managing shareholders’ money.

The most depressed mortgage REIT today was ARR. The stock price on the day fell 5.3%. This is a pretty big drop, but stocks are still trading above 90% of the expected book value of June 30, 2022.

Since it was a wild quarter, there may be more surprises than you would normally expect during a quarterly earnings update. Each management team handles changes in the environment differently. Some are better, some are like ORC.

Some readers may wonder if mortgage REITs will reduce dividends. probably. In his weekly article, Scott provides a table showing recent dividends and our forecasts, along with our forecast range for the next quarter and the probability of reaching that range (our estimate).

Of course, investors need to be aware that they cannot close their eyes and hold a mortgage REIT for dividends (although in many cases this is not the case). There are several equity REITs that are highly reliable dividend growth machines, but we would like to be proactive in managing the position of mortgage REITs. Occasionally after widening spreads between assets and hedges, we are not looking for a mortgage REIT that will generate a significant increase in book value. We have already seen some spread. What you are actually doing is finding an opportunity to trade that can capture a significant increase in the price-to-book value ratio.

We use preferred stock instead to earn a stable income. The majority of preferred stock did not delay pandemic dividends. All of the postponed dividends have resumed dividends and have repaid the preferred dividends in full for all missing quarters. There are several bargains on preferred stock today, and you can go with some bargains on common stock.

Stupid ratio

Our estimate is that ORC trades about 96% of its book value, ARR Trade about 92% of the book value. on the other hand, MFA About 67% of transactions, NRZ About 75%, and PMT About 79%. Do you think it makes sense for you? I don’t have it. Do you think ORC and ARR are dramatically better at investor cash management than MFA, NRZ and PMT? If so, why do you think it? Did you confuse Ticker? Risks / rewards between different mortgage REITs are significantly biased. Investors in this sector should carefully select individual stocks rather than blindly entering the sector.

In my opinion, these ratios of MFA, NRZ, and PMT are too low. We don’t say ARR is cheap at 92% of the book value forecast, but it’s no longer completely terrible. Do you know what makes me really happy today? If you can buy DX at a discount of 20% or more. MFA, NRZ, PMT are good deals, but DX also wants to get such discounts. Probably not, but that’s great.

The rest of the charts in this article may be self-explanatory to some investors. However, if you want to know more about them, Series notes..

Stock table

Conclude the rest of the article with the tables and charts we provide to our readers so that they can track the sector for both common and preferred stock.

Contains a quick table of common stock displayed in the table.

Let’s start the image!

Mortgage REIT Chart

Note: The graph in the published article uses the book value per share of the latest earnings announcement. The current estimated book value per share is used to reach the target and determine the transaction. It is available on our service, but those quotes are not included in the chart below.

Mortgage REIT stock price / net asset ratio chart

REIT Forum

Mortgage REIT Dividend Yield Chart

REIT Forum

Mortgage REIT Revenue Yield Chart

REIT Forum

Commercial real estate REIT chart

P / B ratio chart for commercial mortgages

REIT Forum

Commercial Real Estate Loans REIT Dividend Yield Chart

REIT Forum

Revenue Yield Chart for Commercial Real Estate REITs

REIT Forum

BDC chart

BDC price-to-book value ratio chart

REIT Forum

BDC Dividend Yield Chart

REIT Forum

BDC Earnings Yield Chart

REIT Forum

Preferred Stock Chart

Preferred stock price comparison table

REIT Forum

Preferred Stock Deprivation Yield Comparison Chart

REIT Forum

Preferred Stock Fluctuation Yield Comparison Chart

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Preferred stock price comparison of high-risk stocks

REIT Forum

Comparison of preferred stock deprivation yields of high-risk stocks

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Comparison of preferred stock variable yields of high-risk stocks

REIT Forum

Preferred stock data

Beyond the charts, it provides readers with access to several other indicators of preferred stock.

After testing the preferred stock series, I decided to merge it into the common stock series. After all, we are still discussing mortgage REIT positions. We do not want to cover preferred stock without cumulative dividends, so the preferred stock listed in the column has cumulative dividends. You can check it using Quantum Online. I have included the links in the table below.

In order to organize the table better, I needed to shorten the column names as follows:

  • Price = Recent Stock Price-Show on Chart
  • BoF = Bond or FTF (fixed to floating)
  • S-Yield = Stripped Yield-Show on Chart
  • Coupon = Initial fixed interest rate coupon
  • FYoP = Price Fluctuation Yield-Show on Chart
  • NCD = next call date (earliest share may be called)
  • Note: For all FTF issues, the floating exchange rate system will start with NCD.
  • WCC = Worst Call Cache (Lowest Net Cash Return Possible from Call)
  • QO link = Link to Quantum online page

Second batch:

strategy

Our goal is Maximize total return.. Achieve these most effectively by including a “trading” strategy. Mortgage REIT common stock and BDC positions are traded on a regular basis for the following reasons:

  1. The price is inefficient.
  2. Long-term stock prices generally revolve around book value.
  3. The short-term price-to-book value ratio can fluctuate significantly.
  4. Book value is not the only step in the analysis, but it is the basis.

It is also allocated to preferred stock and equity REITs. Buy-and-hold investors are encouraged to consider using more preferred stock and equity REITs.

performance

Compare our performance with the four ETFs that investors may use to expose to our sector.

A chart showing the best service performance of seeking alpha compared to four ETFs for dividend investors

REIT Forum

The four ETFs used for comparison are:

Ticker

exposure

MORT

One of the largest mortgage REITETF

PFF

One of the largest preferred stock ETFs

VNQ

Largest Equity REITETF

KBWY

High Yield Equity REITE TF. Yes, that was horrible.

If investors think they can’t get a solid return on preferred stock or mortgage REITs, we politely oppose them. There are many opportunities in this sector, but investors still need to be aware of the risks. We simply can’t reach the yield and expect the best. For common stock, you need to be more vigilant to protect your principal by regularly monitoring prices and updating book value and price target estimates.

evaluation:

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