67 WALL STREET, New York - October 31, 2013 - 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, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Pricing Power Outlook - Acquisition and Financing Costs - Apartment, Lodging, Self-Storage and Office REITs - Consolidation Activity - REIT Access to Capital
Companies include: Redwood Trust Inc. (RWT), National Semiconductor Corpora (NSM), Ocwen Financial Corp. (OCN), Walter Investment Management C (WAC) and many others.
In the following excerpt from the REITs Report, an leading research analyst discusses his top picks and stocks to avoid in the sector for investors:
TWST: I know you cover a variety of nonbank lending institutions, including the mortgage REITs, which we'll be focusing on today. In general, how have the mortgage REIT stocks been performing this year?
Mr. Furtado: They haven't been performing, is the short answer. I think investors and management teams throughout the mortgage chain were surprised by the earlier-than-expected talk of taper, and that really rattled a lot of cages. I think the way investors were set up, if we go back to the end of the first/beginning of second quarter, was that banks and other financial stocks looked pretty rich, and investors were thinking "I can park some capital in the mortgage REITs for an annualized yield of 12% to 15%. Am I in love with them and do I want to own them long term through the cycle? No, but I feel like the Fed won't be tapering anytime soon, the economy hasn't been that strong, and so my risk is relatively low. I'll earn some return on my capital over the short term and then rotate out before talk of taper or concern about the Fed pulling out of the market hits."
I think that's how most everybody was positioned, and then the Fed - like a lot of times when you see a massive selloff, it's the unexpected. The Fed did come out and talked about an earlier-than-expected taper, the thought was September, and that really freaked a lot of people out. And it should and it did, for the simple reason that if the Fed is buying $85 billion per month - this was before the run up in rates - between 50% and 80% of new mortgage production was being purchased by one buyer. I don't care if it's cotton, tobacco, gold or mortgages, if you take 50% to 80% of the buyers out of that market, asset prices will come under pressure, and that was the fear.
Obviously, the Fed hasn't tapered yet, but now I think, especially for the longer-term investors, there's this belief of the inevitability of higher interest rates. And so not only has the fair market value of the assets they own gone down, but the desire to own the stocks has diminished pretty materially because of that inevitability that rates will move higher, and that's bad for this business model.
TWST: What was the short-term reaction to the announcement a couple of days ago that they would not taper just yet?
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.