MREITs Worth More Alive Than Dead, Aren’t Liquidating: FBR
Jan. 15 -- Mortgage REITs may be more valuable
if they don’t liquidate, with dividends likely worth more vs
upside from returning capital, FBR’s Daniel Altscher writes in
• Investors are asking why mREITs aren’t liquidating as agency mREITs trade ~0.8x book value, hybrid mREITs ~0.9x BV
• Notes some investors see L-T rates rising over next several yrs, potentially destroying BV, earnings/dividend power
• FBR sees liquidating as unlikely to result in as much value as seems “on the surface,” w/ risk of lost upside during asset sales at “fire-sale” prices, amplified by leverage
• Notes mgmt agreement termination costs
• Most mREITs structured as externally-managed vehicles; FBR sees termination resulting in managers getting 3x–4x prior yr mgmt fee
• Sees agency mREITs as better buyback candidates than hybrids given narrower investment scope, deeper discounts to BV
• Assuming each agency mREIT repurchased 1% of mkt cap, biggest bangs-for-buck vs BV: ANH, ARR, CYS
• Best vs EPS accretion: ANH, ARR, WMC
If that was published and provided to the public, then the OPPOSITE is true. Man o" Man, where did you study you financial or managerial accounting. Due diligence valuation of an entity requires all scenario's to be valued. If you value the M-REIT as a going concern in the present or expected environment with the most realistic outcomes VERSUS liquidation or termination. This has been done several dozen times in past two years and the results from DUE DILIGENCE analysis says "LIQUIDATION" or "DO NOT RESUSCITATE" is the most valuatable outcome, most rewarding. I will explain and it is simple and my results are backed up with actual 20 cases of liquidations in the past 2-3 years. First of all, this M-REIT followed a strategy that proved almost 100% fatal based on historical fact, FATAL STRATEGY: Loading up on MBS when yields were at historical lows(prices at highs), leveraging at 10 to 1 which is extreme, and concentrating on 30 yr. fixed rate assets with extreme negative convexity. VERY VERY EXTREME RISK. If interest rates go up, liquidation is forced involuntary and end result will be theoretically ten times capital losses than what an investor invested in the stock issued. Hence, the capital losses will be far greater by magnitude of 100 to 1, to what the market price of the BK entity goes for. So say the M-REIT get bought out at BK by private entity, lets give it a name Crystal River Management buys Crystal River REIT for $.50/sh, that has a IPO price of $16.00 per share and $150 per share of capital losses. So the winning bidder at BK gets $150 capital loss carryover for $.50/sh, the return to the initial investment is assuming 39% federal and 5% state, is 41% of $150 is $61.50 gain on $0.50 is 12,300%, twelve thousand three hundred percent return over the life of using up the capital loss carryforward. BETTER TO ACTIVATE "DNR". In fact, it is ussually the mgmt. company that will be motivated to this end.
Part 1: Actual M-REIT- IPO July, 2006, At Rest August 2, 2010, Life: 4 years, 1 mo. (Remember my 5 yr. RULE)
New York, NY (August 2, 2010) - Paul, Hastings, Janofsky & Walker LLP, a leading global law firm, announced today that the firm advised Crystal River Capital, Inc., a specialty finance real estate investment trust (REIT), on its going private merger transaction, which closed on July 30, 2010.
Pursuant to the terms of a merger agreement, Crystal River Capital merged with and into a wholly owned subsidiary of Brookfield Asset Management Inc. (Brookfield), an Ontario corporation, with Crystal River Capital surviving as a wholly owned subsidiary of Brookfield. As a result of the transaction, each share of Crystal River Capital’s common stock was converted into the right to receive $0.60 in cash. The stockholders of Crystal River Capital approved the merger at a special meeting held on July 30, 2010.
About Crystal River Capital, Inc.: Crystal River Capital, Inc. is a specialty finance REIT, invested in commercial real estate, real estate loans, and real estate-related securities, such as commercial and residential mortgage-backed securities.
Crystal River (CRZ) has had an absolutely terrible time of it. The REIT went public at $23 a share in July of 2006, and then blew through about $350 million, or almost $14 per share, in just eighteen months.