My own investment background is in income real estate. Last year, I got interested in the property owning REITS. After looking through a bunch of analyses and financial statements, I concluded that these companies were just to difficult for me to understand: they have been building and/or buying so much and have entered into so many complicated deals with so many different parties that I just kept losing track of the basics. I would rather approach these companies through a fund.
The mortgage REITs, on the other hand, are very different business: they are basically engaged in working simple interest spreads under enormous leverage. In terms of their possiblilities and liabilities, they seem more like financial companies--for example--banks than anything else.
As it happens, we will be selling out the bulk of our financial stocks this year, due to mergers. We need to find replacements to maintain good diversification, so the mortgage REIT article came along at the right time.
(Don't get me wrong. There is nothing wrong with the property business at all. It seems strange to be buying interests in properties and projected properties so late in the cycle, when they have become so expensive; but what the hell do I know?)
We run MNRTA and UMH. Have for thirty years. Believe in REITS but not these reits you cant read the financials. A portfolio of properties and a long term outlook is what we like.We are investing in other reits because its a lot cheaper than buying properties. In 1988 we took mnrta out of overvalued equities and into mortgages. In1991 we went back into equities.
Had a look at those two REITS: interesting, especially the one with the 19% return on equity.
Hey, but what do you think about Annaly? What happens to them if we get another sharp liquidity contraction? (How strong are they relative to other mortgage REITS?)
Found another interesting wrinkle on the income hunt. The Liberty All Star Fund (USA) is now yielding something like 10.88. Right now, it is selling at larger-than-usual discount to its NAV. But, get this: a 10% payout is a matter of policy. If they don't make it for the year on NAV, they pay as a "return of capital," reducing your cost basis in the shares.
I looked through a report from late last year. They have a good portfolio, similar to the S&P but not cap weighted. So, its probably overvalued but not so grossly as the index.
Kind of an interesting idea--a way to take part in all this common stock craziness, while "hedged" by an above-average yield.
I believe that the five-year total return has been around 19%. They periodically offer "warrants" for discounted share purchase that have given quite a kick to that average if exercised.
Phage, I,too, became interested in the company after reading the Grant article. I am looking for some yield investments as I feel I have enough money in equities and too much cash. In doing some further research on the company I found that NLY has a web site at www.analy.com - you might check it out. Since you are in a related business, any further comments you have regarding NLY would be appreciated.
I was wondering if they had a site but didn't see anything on Yahoo.
As to being in a related business, I don't know. I was a small landlord and, at one time, an employee of larger landlords. Even so, the residential REITS left me scratching my head: they're functioning on a whole different level of complexity.
Like I said, NLY is a whole different type of business--exclusively paper. If you look at the design of the business and at the kinds of people who were selling it last summer, you get the picture of something that is bound to be volatile. (If someone sees this differently, I wish they would say why.)
If you can live with the ups-and-downs of the share price, you get a relatively attractive return with a relatively high degree of certainty. (The market value of the stock is inconsequential, so long as you aren't under pressure to sell.)
As long as NLY can survive and prosper, this situation ought to remain about the same. You could buy this stock on high yields for years and sell whenever it's bid up by large investors.
Want to see a bizarre and somewhat similar situation? Take a look at Great Northern Iron, an income producing property trust. The trust goes out of existence at some point in the not-too-distant future, so it may not be a good investment; but large investors, Mario Gabelli for one, were moving in and out of this stock for years.
These guys tend to think in terms of relative opportunity.