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Apollo Residential Mortgage, Inc. Message Board

  • iokuok007 iokuok007 Jul 2, 2012 2:02 PM Flag

    Why Is AMTG Less Than Book?

    The other reits are trading for 105% to 115% (AGNC) of their 3/31/12 book value and AMTG is trading slightly under the adjusted 2Q book. I wonder why?

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    • asstsecretary Jul 8, 2012 11:42 AM Flag

      I can only speak about AGNC with regard to its book value. Investor relations has advised me that they do use an accurate number of shares outstanding for balance sheet entries but for all other purposes such as BV that use a "weighted average" of shares outstanding during the quarter. In other words, for AGNC, BV will be overstated in periods in which there was an SPO. In other words, the BV/share cost will be even less than you think.

      That being said, AGNC is the 1,000 pound gorilla in the room. I personally feel that seemingly static metrics like BV can be ignored when performance at the MReit level is the attraction. For my money, a company that has proven that they can product exceptional yields in a such a sophisticated arena is worth holding so long as they continue to produce. BV might be useful to measure relative performance of AGNC from year to year but it is of little value comparing it to other companies with a much lower yield.

      • 1 Reply to asstsecretary
      • I'm just throwing this answer "in the fire", so to speak. Since AMTG is a hybrid mREIT (It offers agency and non-agency residential mortgage-backed securities) while AGNC offers ONLY Agency MBS, the "risk" is relatively higher with AMTG than with AGNC. Therefore, people will pay a higher PPS for AGNC than for AMTG, thus a higher price per BV. This is a "premium" the market is willing to pay for the safer investment AGNC. The BV is what shareholders would receive if all shares on the books were liquidated. Agency backed securities are backed by a US gov't agency while non-agency MBS are not, so money could be lost if non-agency MBS's were liquidated.


    • I sold out of half my AGNC position today (got in back in March at 29.50) so $5 + a div, resulting in a 20# return in roughly 4 months was just to much no to skim a little.. Which now has left me looking at where I can put it back to work and this one caught my eye and left me asking the same question...

      I don't know the answer but if you look at MTGE vs AGNC, both have the same management team, leverage, very similar metrics, strategy, etc... However MTGE is currently at around 113% to book vs AGNCs 118%, so a roughly 5% discount

      I'm wondering if this discount is because the stock is smaller, somewhat more thinly traded, and a hybrid.. If so then it suggests to me that maybe other smaller, thinly traded hybrids (like AMTG) should be at a roughly 5% discount to larger agency REITs with similar leverage (like NLY which is around 106%, so seems to support the "theory" at least)..

      If true though the better question to me seems to be is 5% the right amount of discount? Regardless stock still looks and feels "cheap" here (just not sure if it's hair on fire and running around screaming cheap or not yet).. Regardless probably dip my toe in tomorrow or Monday if things head back down south on the jobs report.

    • I show it's 91% with a yeild of 15.56%. NLY at 104%, AGNC at 116% and MTGE 109%.

      I think you are correct, it should be trading near or above BV.

      This stock seems cheap.

      • 1 Reply to bovisutor
      • AMTG put in their earnings report the "what if" number that said the book value as of 3/31/12 would have been $19.31 if the SPO shares they issued soon after were included it the calculation. Hence, they are slightly above the adjusted book value while other reits are going to huge multiples. AGNC is at 117.5% over book which makes me wonder whether or not I should even buy an SPO. I will trust the greater fool theory and buy, hoping I'm not the greater fool. From the stock price action in AGNC, I doubt it.

    • It's relatively new. Give it time.

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