Resource Capital Corp. Message Board

The SA article can be found at:
http://seekingalpha.com/article/1456411-how-would-the-end-of-the-fed-s-qe-affect-agency-mreits?source=email_investing_income&ifp=0

fstoppp;
Good question. I read a SA article today that while written with mREITs in mind applies to BDCs as well. It is summarized below:
1. Short term rates would stay low for a considerable time while long term rates would increase resulting in an increase in the "spread" or a "steepening yield curve". This would be positive for companies that make a profit borrowing low and lending high like mREITs and BDCs. Also, it would benefit commercial mortgage REITs.
2. Because long term rates would be increasing, the market value of the underlying assets of mREITs, (the underlying mortgages) would decrease in value resulting in a lower Book Value (BV) for the companies. This would in turn reduce the company's ability to borrow and so higher leveraged companies, such as ARR and AGNC, will be negatively impacted more than more moderately leveraged companies.

My "take away" is that hybrid mREITs should do OK. Purely "Agency" mREIT's, especially those that are highly leveraged, will do poorly, Business Development Companies and commercial REITs should do quite well, especially when one looks at their earnings, dividends, and yields which in turn should result in a higher stock price. It is a trade-off between a decrease in Book Value and an increase in earnings. The impact of a decreasing BV will be a "short-term" occurrence, (amplified by the amount of leverage that is used), while the increasing earnings will be longer term, especially as short term rates remain low.

I am a dividend investor and therefore am more concerned with the dividend and yield than I am with BV and stock price.

I feel that BDCs and especially PSEC will benefit significantly in the post QE environment because interest spreads with increase which in turn will result in increased profits and dividends which will, I believe will be reflected in an increasing share pric in the long run.

I would disagree. We had a 3.5% drop today, largely because the whole market sold off. At the current $0.19 quarterly dividend, NRF is yielding 8.3%. With no reason to expect a reduction in dividend (and some good reasons to expect dividend increases), this is just too good of yield at current prices. Also, it is my opinion that the entire market over reacted to the FED minutes saying that there were several members who were in favor of considering tapering off the FED's purchases. However, Uncle Ben was quite clear in his testimony today that a premature tapering of asset purchases would be detrimental to the economy and gave every indication that it would be several months before tapering would occur. He also indicated a gradual approach to tapering when it begins.
The market has moved too far, too fast and was due for a correction. However, IMHO, any correction, including today's "sell-off" will be short lived and presents an opportunity to increase positions including NRF.
Just my opinion, but one on which I acted today by increasing my position in several companies, including NRF.

Sentiment: Buy

Good post, sorry that I didn't write it.
lunco

Wayne;
Wayne
As I read what Cohen said, the 44 million was "in the pipeline" at the end of the quarter and so was not included in the the 61 million of loans. Here is the quote from Cohen:
"Jonathan Cohen, CEO and President of Resource Capital Corp., commented, "Resource Capital Corp. had a very good first quarter, in which we had new loan production of $61 million and a strong pipeline, including the $44 million loan which we announced last week and several more in the works". That would imply that this next quarter may be a "bit" better, and hopefully earnings will start moving up but it won't be very fast. I think that dividends are going to be at $.20 a quarter for the rest of the year.
I agree with a B- grade for the quarter and I must say I'm disappointed but I'm not a sell yet.
Thanks for the post.

Currently, 7:37 EDT, RSO is down $0.20. However, there have been only 17500 shares traded. I think that you are correct on both accounts; RSO reacting to a poor earnings report for AGNC and that they are very different animals. If anything, IMO, the disappointing news for AGNC should be positive for RSO since they are in very different businesses with the FED buying MBS but not commercial loans. It may take a day or two but the AGNC affect, IMO, will be short lived. When RSO reports it will be judged on its own merits.

A block of about 50K went on the market at about 9:30, just about when the CC was being concluded. This may have "spooked" others because it appears that a number of other shares were sold shortly thereafter. The price began to move up from about 10:10 on throughout the day but the "damage" had been done. This is how I am "reading" the trading action today.
More importantly however, I just finished reading the CC transcript and there were some very important points that were made by AI management. The first point was about the SPO not being fully "put to work" until the end of April (today), which accounted for about $.05 per share decrease in earnings and, as I understood what was implied, the subsequent leverage on the SPO won't be in place effect until closer to the end of May. Also, the point was made that that 25M borrowed in their recent senior note offering, should result in an additional $.15 in eps. IMHO, the CC was positive and so is the outlook for AI. I expect that we'll look back at the drop today as being a buying opportunity within the next several days. Again, JMO

AI had a SPO on March 7 for 3,000,000 or roughly a 22% increase in shares outstanding. The money raised by the offering had less than a month in which to be put to use and it really contributed little if anything to the earnings to the 1st Quarter. Therefore, as I see it, the $1.04 eps would have been significantly higher last quarter if there had been no SPO. However, the money raised from the SPO will now hopefully have been put to work with a resulting eps for the current quarter being significantly higher than $1.04. So, all in all, I think that AI continues to have strong earnings even though the eps was significantly diluted by the 3M shares of the SPO.

Hi Wayne;
All good points as always. I guess my question revolves around why RSO would announce this loan while not announcing any others. this quarter or even the previous several quarters. (In fact, I can't remember then ever announcing a loan). Is it the size of the loan? (This is much bigger than their standard loan size). Is it a new policy of announcing all loans? Or, heaven forbid, this is all the news that they have to announce? I tend to think it is more the size of the loan that is worthy of a press release rather than the fact they have made a loan or that they have adopted a new policy concerning the announcing of loans.
As you say, we'll have to wait to find out.
Wishing you well

I like them both but for different reasons and at the close today, I held virtually an equal amount of each. That said, I do believe that NCT is better l for price appreciation and I believe its dividends will continue to increase over the longer term, and I think that NYMT is better for its yield for the short to medium term but I'm not sure that there will be much increase in dividends over the longer term. So I anticipate keeping roughly the same position in both as I have today for the next several months, but I will likely reduce my mReit holding and expand my other financial REIT holdings over the next couple of years as interest rates move up.
Wishing you well

exdivy...
Good to hear from you and I hope all is well. I'll give NVIV a look and thanks for your interest.
Take care

So let me get this right; dividends are based on stock price rather than stock price being a factor of dividends.
Quite a novel investing thesis.

magdala;
thank you for a very mature response to an unfortunate insult.
Hope all is well;

jwvar
There is no reason for insults, regardless of how much you might disagree with a poster. Yes, you are right that the share price did increase today, but the issue was concerning whether Deutsech bank might be totally objective in their report. I would like to think that they are, but that doesn't mean that they will be. A little healthy skepticism is maybe warranted just as is magdala suggesting.

Ken;
I think that the yield is closer to 12.9% :) Your point is well taken.

Hi Ruby...
I cut my position by 20% about the same time as you decrease yours but I am finding it hard not to be buying back some of what I sold at the current prices. I feel that the .80 is safe enough and that this offering at substantially above BV will not only result in an increase in BV but it along with the increased credit line at Wells will result in an increase in eps and an increase in the dividend, hopefully back up to the "buck". It does get frustrating for me to wait for the anticipated dividend increase, but I believe it is coming and in the meantime, at a 12.8% yield, I believe my patience will be rewarded.
Anyway, the best to you and thank you for your well reasoned posts; I for one appreciate them.

Wayen;
I fully agree, there is a reason why RSO is increasing their credit lines and is doing a "follow on" offering. There is also a reason, as has been pointed out that the underwriters and Wells have facilitated RSO in rasing a lot of cash in a very short time. I submit that RSO has a plan for this money that will be implemented quickly and we (Wells, the underwriter, and we the stockholders) will all benefit from.
Thanks again for your timely and insightful posts.

Sentiment: Buy

From the earnings release, I agree, ".20 MAYBE, .21 if we are lucky, but no way it's .225." A disappointment for sure. However, not .19 either, the .20 looks "safe" as Cohan seemed to "hint" when he spoke of "good dividend coverage".

Better to be taxed some day as Long Term Capital Gains than taxed today as ordinary dividends.