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Look Here for the Highest of Current Yields

For those with a bit more tolerance for risk here is where you look for current yields of preferred stocks in the 7-10% range.

Preferred stocks of mortgage REITs. This listing is under the “Preferreds” heading above.

mREITS are probably not for everyone–I do not own any residential mREIT preferred right now (but do own a couple of the more commercial REIT preferreds right now–Ready Capital (RC) and Arbor Realty (ABR).

I plan to try to ‘bone up’ on the residential REITs in the next couple weeks to see if I can gain enough understanding of them to feel comfortable taking some positions in these high yielders.

29 thoughts on “Look Here for the Highest of Current Yields”

  1. Here is Tim’s list of MREIT preferreds, sorted by YTD price change.

    Ticker, current yield, YTD% change
    STAR-G, 7.5%, 0%
    STAR-D, 7.8%, -1.3%
    STAR-I, 7.4%, -1.4%
    NLY-F, 7.1%, -4.9%
    AGNCN, 7.2%, -5.4%
    SACH-A, 8.1%, -6.4%
    PMT-B, 8.2%, -7.6%
    NYMTM, 8.4%, -8%
    CIM-A, 8.6%, -8.7%
    PMT-A, 8.4%, -8.7%
    NLY-I, 7.1%, -10.4%
    DX-C, 7.4%, -10.6%
    KREF-A, 7.1%, -10.6%
    NLY-G, 7.2%, -10.9%
    CHMI-B, 9.2%, -11.1%
    TWO-A, 8.7%, -11.1%
    CIM-B, 8.9%, -11.6%
    RITM-A, 8.2%, -11.8%
    ACR-D, 8.9%, -12%
    ACR-C, 9.6%, -12.2%
    IVR-B, 9%, -12.3%
    CHMI-A, 9.2%, -12.8%
    MFA-B, 8.6%, -12.9%
    AAIC-B, 8.2%, -13.1%
    CIM-D, 9.1%, -13.1%
    GPMT-A, 7.9%, -13.1%
    AGNCP, 7%, -13.7%
    RC-E, 7.6%, -13.7%
    ARR-C, 7.9%, -13.8%
    RITM-D, 7.9%, -14%
    AGNCM, 7.8%, -14.2%
    AGNCO, 7.4%, -14.3%
    NYMTL, 8.2%, -14.5%
    MFA-C, 8.1%, -15%
    RITM-C, 8.1%, -15%
    IVR-C, 8.9%, -15.1%
    AAIC-C, 9.6%, -15.3%
    CIM-C, 9.1%, -15.3%
    TWO-B, 8.6%, -15.5%
    TWO-C, 8.4%, -15.6%
    NYMTN, 9.3%, -15.7%
    RITM-B, 8.3%, -16%
    ABR-D, 7.5%, -16.4%
    FBRT-E, 8.9%, -16.5%
    EFC-B, 7.4%, -16.7%
    RC-C, 7.4%, -16.7%
    MITT-A, 9.9%, -17.3%
    ABR-F, 7.4%, -17.5%
    NYMTZ, 8.6%, -17.9%
    EFC-A, 7.8%, -18.4%
    ABR-E, 7.6%, -19.3%
    MITT-C, 10.1%, -19.7%
    PMT-C, 8.4%, -20%
    MITT-B, 10.1%, -20.1%
    TRTX-C, 8.3%, -22.3%
    ICR-A, 7.7%, NA%

    Median current yield = 8.2%, YTD change -13.7%

    1. Thanks for providing this. It highlights that MREIT Preferreds tend to move together… yet the portfolio of NYMT is vastly different than NLY or FBRT or RITM.

      They also tend to move with the common, presenting opportunities if you understand their portfolio and can distinguish between book value decline and probably of pref default.

      Evaluating MREIT prefs is very akin to evaluating other fixed income investors. You need to know their portfolio, leverage, terms, ownership structure, and the quality and integrity of management.

  2. Yeah, many investors won’t ever give MREIT Preferreds a look. Their loss, our gain..

    Here is the main reason they represent compelling value: management is self interested and will do whatever it takes to avoid defaults in order to keep their paychecks coming. Hence they won’t hesitate to bang out secondaries when needed. As a pref holder, we don’t care about book value destruction or common dividend cuts, only getting out $ back. Look at ORC, they are the worst.

    Here is reason #2: their holdings are much more liquid than a typical company. If needed, AGNC could liquiditate it’s entire book of assets within 6 months, you can’t say that for a company that builds things like Ford or a company with intellectual capital like a Goldman Sachs.

    1. Btw, bonus points for anyone that can provide the MREIT pref with the highest common/pref equity coverage ratio!

  3. Tim, I echo what’s been said about The REIT Forum by Colorado Wealth Management on SA. IMO it is the best mReit advisory. Associated with it is Steve Kennedy, who in my book is one of the top mReit analysts. Safety ratings for the common and the preferred shares along with price ranges— strong buy, buy, hold, overpriced. Interestingly Kennedy rates RC and RIMT as lower risk than even AGNC and NLY. There are a lot of strong buys right now.

    1. Right I am on a free trial subscription for High Yield Landlord which I signed up for because I respect R. Paul Drake and they had a post-announcement interview available to subscribers with Jay Sugarman CEO of STAR and SAFE…. I’ll probably not continue as there’s no way I could keep up but overall I’ve been impressed with the amount of knowledgeable real estate people who participate in their forum…. They have a running disagreement going on right now on SAFE/STAR with Dane Bowler of Portfolio Income Solutions regarding valuing the STAR/SAFE merger with both sides making very compelling arbuments… And interesting battle of sorts. My interests are almost solely on feeling comfortable the merger closes, so I can step aside and gain what I can from both…. Drake = pro STAR and Bowler = anti-STAR based on valuations.

      1. Well, I’ll have to hedge on my answer, Z because I’m still not convinced what to think… Positionally, I’m mostly in preferreds and the unsecured debt issues so I really don’t care as much about the longterm as opposed to just having the deal close, so I’m good whichever side prevails… Both their views have to do with the longterm value of the new SAFE… To me, Bowler’s bearish view is the easier one to grasp, and Drake seems to be toeing the partyline as to the disruptor model that Sugarman has built for SAFE and its groundlease strategy. Prior articles by Drake on STAR have laid out more details and have been very informative, but again, the story is built around very longterm scenarios… Having said that, it’s very encouraging that they have found Michael Dell to enter the fray by investing $200 mil at a $2 billion valuation in the longest of the longterm aspects of this deal, what’s known as the Caret. That’s impressive…. So I’m tending to side with Drake’s and Sugarman’s themes, but will not add to the small 200 share position I have in STAR common and will stick with having my exposure being mostly tied to a successful closing of the deal.

    2. Wilson, are you referring to the articles they publish for free, or do you have a paid subscription to The REIT Forum? If so, I’d be interested to hear whether you’ll renew it (actions speak louder than…). 😉

      To be clear, I’m not casting aspersions on them (I’ve valued all their free material); I’m truly interested to know whether you consider it valuable enough to continue and renew…

      1. I have a paid subscription. I have had a number of SA subscriptions over the years and rank this one the best. Have had it several years and renew regularly. The public articles are good, but the subscription is much better. In addition to mReits, Kennedy rates and prices BDC’s. Valuable and always sound advice. I have an annual subscription but think you could go monthly at first if you want to try it out.

  4. I use full positions of AGNCN and NLYprG in my fixed income account. They’re the only issues in that account that aren’t investment grade. AGNCN currently pays 7% face yield but, if it isn’t called later this year, will float at 3 month libor + 5.1%. The current 3 month libor is 3%.

  5. I never understood the irrational fear of MREITS by some. Sure, like everything, they are not for everyone but they are also not that hard to understand.

    Now granted I only own the preferred shares of MREITS – I avoid the common as those have more risk

    I suggest anyone interested in MREITS to follow Colorado Wealth Management Fund on SA. One of the few honest writers there and this is his area of specialty.

    There are different levels of safety with each. AGNC and NLY are top of the pile in terms of safety and DX is up there too. I own some preferreds of each of those along with preferreds from CIM, PMT, RITM and FBRT (which was the old CHMI). None of these that I can recall suspended preferred dividends in the Covid crash and none of the entitles faced margin calls on securities they owned. A few weaker mreits did face margin calls and suspended preferred dividends although later reinstated them

    1. CWFM is indeed the best analyst for REITs. He’s heavy into short term trades when the price is right. I only trade the preferreds they are less volatile and I find them more predictable. oh and FBRT is the old CMO.

      1. Thanks – you are correct on FBRT being the old CMO – I mixed up CMO and CHMI. Thanks for the correction

  6. I actively trade about half of those. RIMT has been ideal for hopping between issues on price movement. RIMT-D is now 60 cents higher than RIMT-B which is less than where I think it should be but at various times they have been the same price. RIMT-A also hops around relative to the others. MITT’s are good for frequent smaller swaps if you can handle the high risk. I have a lot of CIM’s for the high yield, though fewer opportunities to swap they do exist. Got out of AGNC’s and NLY’s when the yield was too low, inched back in on the recent downturn. NYMT’s and TWO’s are old friends. Dabble in some of the others but not heavily.

    1. Hi KJN–thanks for the heads up–looks like I missed getting it listed–will take care of.

    1. Analysts rate them somewhere in the middle,. So the price looks about right. I don’t trade then much because I find it hard to play the spread you need to wait around for the right price. The fixed rate issue at $4 lower may be the best bet now but it’s a guessing game about what future interest rates will be.

  7. Tim – Should IStar really be on this list? I’m far from being an expert on what should or shouldn’t be considered a mortgage REIT but as your link describes mREITS as being “in the business of buying packages of residential mortgages from either Fannie Mae or Freddie Mac (agency mortgages) or from other originators of residential mortgages,” I don’t think that’s ever what IStar ever did…. And of course, in the future, after they merge with SAFE, what they will be doing will be even further removed from the definition I would imagine.
    Not that I’m that familiar with all the other names on the list, I”m just quite familiar with STAR and they just don’t seem to fit the image…

    1. Oh, I see where ISTar may fit into this category – companies that…. “arrange financing for those building commercial buildings of all types.” OK, I see.

  8. Tim – I’m not aware of NLY – AGNC – or DX ever defaulting on there preferreds. The coverage ratio’s are excellent and I’m long DX-C – AGNCN – AGNCO – NLY-F – NLY-I. ATB

    1. TimH–I am not aware either–that is why I may venture in. I just need to do some further DD to help my comfort level (relative to the commons shares which I won’t own).

    2. Tim, you want to take a tour of the Mortgage REIT graveyard. It added a lot of tombstones in the 2007-2008 GFC. I do not recall if any of them had preferreds outstanding or not, but the commons were crushed. Plus any bonds they had outstanding. We have to understand that MREITS fundamental business policy is to borrow short/lend long. Works great until you get an inverted yield curve. All MREITS claim to have various hedges in place so they can survive and prosper. Just like the ones in the graveyard did before 2008. Check out New Century Financial for example @ https://en.wikipedia.org/wiki/New_Century_Financial

      I am not forecasting that any of the current crop of MREITS will meet the same fate, but would not be surprised if some of them did. . .

      1. I’m guilty of being on the mREIT bandwagon. I was starting to buy them when Build Back Better, MMT, and transitory inflation were terms being kicked around. I needed to add floaters at the time, and the mREITS are good for that.

        When I did analysis for a second tier bank (think just under the TBTF ones), mREITS did have some whacky internal underwriting standards. Luckily, they were handled by another regional office. It was interesting to see how they looked at the financials though. Can’t say that I really understood why they thought the way they did.

        I just stick to the basics;

        What does the leverage look like?
        How aggressive is their portfolio?
        How is the cash generated (in order of preference) CFO, CFI, CFF?
        Management seems to be a big deal in this area. A bad management team can really destroy value quickly and is a yuge red flag.

        You always seem to get a discount in the mREIT world unless it’s a big “safe” name. Otherwise, the coupons can be generous and the spreads are extra tasty to compensate for the extra perceived risk IMHO.

        1. Ha it does have that stigma.

          I would paint a similar stigma for the common shares but many of the pref have enough cushion to absorb the inevitable losses that arise for running levered yield plays. Hence, I would call it an unfair stigma for may of the pref names.

          Most CEFs are just as bad as MREITs, designed to attract yield investors, charge high fees, and hope their leverage doesn’t blow them up.

      2. Tex,
        Most of the mREITS I have looked at do seem to have a practice of borrowing short/lending long. One exception appears to be ABR – their funding and lending seem to match up pretty well, and they do not seem as vulnerable to interest rate swings as the others. If I’m wrong about this, it would be great if someone would take the other side here.

        1. It’s hard to paint a broad brush.
          Most of the credit and some non-agency MREITs tend to invest in floaters, hence rate risk isn’t an issue, but rather the probability that their borrowers default more when rates rise.

          The good MREITs will address lots of these concerns. eg DX will actively manage its agency/rate exposure, same for Ellington. And almost all have evolved from using short term repo to finance to having locked up term financing. This is the main issue many have learned from over the years, get your financing in order. And the best are those that securitize their assets , meaning the majority of the losses will flow through to shareholders of the security, not the MREIT. Lastly, many don’t allow for cross collateralization.

          These are all steps that can be taken to manage risk in their portfolio.

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