LUM i see as doing what many Mortgage REIT's are trying to do, using overnight debt to fund operations. I see they just repo. all their mortgage-backs? So they probably collect 2% on the spread. The coupon rate is 4% on what they collect. Their maturity is under 5 years so not much principle risk but cash flow would be a real problem if short rates rise. Might be interesting after the first dividend cut, which would scare a lot of folks. Let me know if you think is coming. LUM is subject to a Long Term Capital blow up too like Merrill pulled in 1998 on mortgage backs. I see too many doing the repo. game these days, it scares me.
GPP is a bit of a different animal. Their leverage will be higher but the mortgages will be matched with the lease term and property specific. So the cash flow will be somewhat protected. But as you say, what the overall cap rate comes in at is a question. It's a long bond, that is expected to yield 10% next year. I will add on those weak times which we know is ahead for REIT's is my plan.
Doing more DD on LUM. What is a "hybrid adjustable rate mortgage". This one looking more interesting. I assumed fixed rate stuff but I see they are playing the spread on adjustable mortgages which looks interesting. I assume that's why the their maturity schedule looks so short.