Wall Street Transcript Interview with Daniel Altscher, Research Analyst at FBR Capital Markets & Co.: Agency Mortgage REITs Draw in Investors, Look to Expand Business

Wall Street Transcript

67 WALL STREET, New York - June 27, 2014 - The Wall Street Transcript has just published its REITs Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Apartment, Lodging, Self-Storage and Office REITs - Consolidation Activity - REIT Access to Capital - Residential and Commercial REITs - Correlation Between Macroeconomy and Real Estate - Agency Mortgage REITs - Supply and Demand Dynamics - Favorable REIT Fundamentals

Companies include: National Retail Properties, In (NNN), Entertainment Properties Trust (EPR), MFA Financial, Inc. (MFA), Annaly Capital Management, Inc (NLY), Inland Real Estate Corp. (IRC), Anworth Mortgage Asset Corpora (ANH) and many more.

In the following excerpt from the REITs Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Let's switch to the mortgage REITS. How are they performing?

Mr. Altscher: The agency mortgage REITs have performed extremely well this year. It's really interesting from the standpoint of in 2013 you couldn't give these names away for free. No one wanted to touch them, and you saw this happen twice in 2013.

Around May and June, when taper talk started to get some traction and the 10-year moved from about 160 basis points all the way up to almost 3%, the group sold off really hard, for understandable reason. And then we saw it again in the back half of the year as taper actually started, though the group had already started to sell off even before that, so I don't think it was directly related to that; I think it was more of folks just derisking, ending the year without positions in mortgages REITs, agency names in particular.

But this year things have reversed course a bit. Investors have been more interested in getting back into the agency mortgage REITs I think particularly because the valuations to start the year were just so attractive, call it 80% of book value on average. That made for a pretty tempting, "hold my nose and jump right in" sort of position or call for a lot of folks, and they did that.

I think management teams on the whole feel a lot better about their portfolios than they did in most of 2013. You've seen a significant trend of derisking across all the portfolios. Companies have shortened duration on the whole; they have delevered, so portfolios are safer, asset values are safer, book values are safer and liability risk on the repo side hasn't really changed. Repo financing is still very readily available, and rates haven't changed.

So when you think about now and then, clearly being an agency mortgage REIT is a lot safer than it was in say May of last year. There's also reason to believe that taper is priced in - everyone knows that's going to happen, it's going to continue, so that's kind of off the table. Convexity risk is a lot lower, so extension risk and the move out in duration, if rates were to move up higher...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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