24/7 Wall St. » REIT

REITS for the 2012 Model Dividend Portfolio (GOV, SNH, DLR, RWR)

Administrator — Fri, 23 Dec 2011 14:01:05 +0000

Investors are chasing up rent-based assets because they are searching for yield. Earning 2% per year by lending Uncle Sam money is not enticing, so investors are still on the prowl for dividends with more 3%, 4% and even higher in dividend yields. 24/7 Wall St. recently released its own 2012 Model Dividend Portfolio. We have Government Properties Income Trust (NYSE: GOV) and Senior Housing Properties Trust (NYSE: SNH) on the list this year. While we have been a long-time fan since far lower prices, we have at least temporarily removed Digital Realty Trust Inc. (NYSE: DLR) from the Model Dividend Portfolio.

We have evaluated the current prices to show the yields and true values here on each. If applicable, color and other price target data has been added on each.

Government Properties Income Trust (NYSE: GOV) is very interesting at only 1.2-times book value. You can make 2% lending to Uncle Sam for 10 years, or you can collect a 7.7% dividend yield here by acting as the government’s landlord. This REIT was oversold and its tenants are federal, state and local government entities. When we added it to the Model Dividend Portfolio, it was at $21.75 and now shares sit above $23.00. Thomson Reuters has a consensus price target of $24.17, but we value this one at $25.00 or even higher.

Senior Housing Properties Trust (NYSE: SNH) is acting as the landlord for senior communities, assisted living and nursing homes. It recently has had a capital raise to pay for acquisitions and it does deals where it can. It avoided the reimbursement woes and it generates a 7% dividend yield currently. Thomson Reuters has a consensus price target of $24.00.

Digital Realty Trust Inc. (NYSE: DLR), a long-time dividend favorite for technology and the IT, has been removed from the 2012 Model Dividend Portfolio. We consider this the “Landlord of Technology and the Cloud,” and we removed it formally at $4.50 on the list, but now shares are even higher at $66.25. Our maximum price threshold was $62.00 with what was a 4.3% yield. We would be interested again if it returns to the high $50s. Thomson Reuters has a consensus price target of $66.70.

If you want to receive the full 24/7 Wall St. 2012 Model Dividend Portfolio, it is being offered in full, with more than 10 different stocks, to those who sign up for our free daily email subscriber list below. Each morning we send our free email list subscribers a snapshot of the key feature stories, the top daily analyst upgrades and downgrades, previews for key events and many other aspects governing your finances.

For those investors seeking a more diversified strategy in the world of REITs for above-market yield, there is the SPDR Dow Jones REIT (NYSE: RWR). If we add up the last four dividend payments for the $2.03 paid out as income, then the implied yield based on a $64.00 price, we get almost a 3.2% dividend yield. It still beats Treasury yields by far, but at $64.00 its 52-week trading range is $52.32 to $70.26.

JON C. OGG

Filed under: Dividend, Housing, REIT, Shareholder Issues Tagged: DLR, GOV, RWR, SNH

Is Digital Realty Still The Best Tech Dividend? (DLR, INTC, BRK-A)

Administrator — Thu, 15 Dec 2011 15:36:12 +0000

Getting a dividend of over 4% from a technology company is no simple task, even as many technology leaders have decided that higher dividends can finally start to be used to reward their shareholders. This is where Digital Realty Trust Inc. (NYSE: DLR) comes into play.

24/7 Wall St. refers to Digital Realty as “The Landlord of the Cloud and Technology.” For months and months this was our top dividend pick for anything tied to technology. While it is a real estate investment trust, or a REIT, the company houses many datacenters, storage farms, and technology outfits as its key tenants. The problem is that this upside and valuation has currently diminished to the point where our internal risk-reward metrics. We have now removed it from our top dividends portfolio and it is not a part of the 24/7 Wall St. 2012 Model Dividend portfolio.

While this may sound like a bash, it is far from it. The company is very well-run and the only reason we are cautious is just tied to price and valuation. If this REIT was to come under some price pressure and go back into the mid-to-high $50 handles, we would become very interested in adding the REIT back into the model dividend portfolio.

Now that Intel Corporation (NASDAQ: INTC) has pulled back close to 10% from its recent highs and with its dividend at 3.6% or so, we are currently more interested in it even though the recent warning which were expecting probably takes away any sense of urgency. Still, Intel was good enough and attractive enough that Warren Buffett violated his long-term stance at Berkshire Hathaway Inc. (NYSE: BRK-A) of not investing in technology for Intel.

The high dividend at Digital Realty is now a yield of about 4.3%. At $64.10, this went above our $62.00 max-threshold and the 52-week trading range is $47.42 to $65.57 aqnd the consensus Thomson Reuters price target is $66.60. It was trading at $55.80 when we first targeted the REIT for the model portfolio. With less than 5% implied upside, our inclination would be to tell readers that patience may actually be a virtue here.

There is some other good news that could be an ace in the hole that could change our outlook as well. Digital Realty may again hike its dividend. The company has now recently gone ex-dividend (December 13) and it has now had four straight quarters of a $0.68 per share payout.

If you want to receive the full 24/7 Wall St. 2012 Model Dividend Portfolio, it is being offered in full to those who sign up for our free daily email subscriber list below. Each morning we send our free email list subscribers a snapshot of the key feature stories, the top daily analyst upgrades and downgrades, previews for key events, and many other aspects governing your finances.

JON C. OGG

Filed under: Corporate Governance, Dividend, REIT, Technology Companies Tagged: BRK-A, DLR, INTC

An IPO for the Empire State Building

247wallst — Wed, 30 Nov 2011 11:19:41 +0000

The Empire State Building was erected in 1930, at the beginning of the Great Depression. It took only 18 months to complete the 102 story structure, which would be impossible in today’s world of permits and labor unions. The building remained the world’s tallest from its completion until 1972. It is among the most famous skyscrapers in the world. Now the public will be able to own a piece of the Empire State Building through an initial public offering. This may be the best IPO bargain in years.

Malkin Holdings LLC, which holds the majority interest in the building, will take a REIT public, probably next year. The Empire State Building will be among the structures included in the real estate portfolio of that REIT.

Unlike companies like LinkedIn (NYSE: LNKD) and Groupon (NASDAQ: GRPN), the Empire State Building has a long operating history. It also has a predictable capital investment level, based on decades of expenses. The cash flow from the building is equally predictable because of its long history of what tenants will pay per square foot. The Empire State Building is one of the few IPOs of this year or next in which there is safety in the financial projections. They do not depend on new businesses like online coupons or social networks.

The media has pointed out the the Empire State Building is so well known that the demand for the IPO will be tremendous. The new stock certificates will be memorabilia in some sense, even though the initial public offering will be new. Recent IPOs, such as Groupon’s, have lost half their value in just a few weeks. But they do not have solid operating histories — not like the Empire State Building.

Douglas A. McIntyre

Filed under: REIT Tagged: GRPN, LNKD

Chimera Accounting Review, A Lesson For Other Mortgage REITs (CIM, NLY, AGNC, HTS, MORT)

Administrator — Tue, 15 Nov 2011 16:01:29 +0000

Chimera Investment Corporation (NYSE: CIM) is the mortgage REIT which we used to dub “the vulture mortgage REIT” because of its targets in lower-rated mortgage-backed securities. Usually a delay in a quarterly filing is not a good thing, but today that is not the case as the company clarified that the accounting review “will not affect the Company’s previously announced GAAP or economic book values, actual cash flows, dividends and taxable income for any period.” The company also noted that the quarterly filing will come “as soon as practicable.”

Without trying to draw too much in cause and effect, this could have an impact on most of the mortgage REITs if this develops as it is being accepted today. Specifically, this may bring a similar interest in shares of Annaly Capital Management, Inc. (NYSE: NLY), American Capital Agency Corp. (NASDAQ: AGNC), and Hatteras Financial Corp (NYSE: HTS). We would also look for the sector to impact the Market Vectors Mortgage REIT Income ETF (NYSE: MORT).

It was on November 10 that Chimera disclosed that the review by its outside independent accounting firm was with an analysis of the treatment under GAAP of “other-than-temporary impairments” related to investments in securities rated less than AA, non-rated non-Agency securities and other subordinate securities.

Chimera noted that it has not completed its analysis, but it did specify that it expects only immaterial adjustments to its historical financial statements in prior comparable periods. Also noted was that the effect will be a non-cash change in the GAAP accounting results and this change will not affect previously stated GAAP or “economic book values, actual cash flows, dividends and taxable income for any period.”

Another note was that the second quarter GAAP book value of $3.35 per share and economic book value of $3.08 per share will not change due to this action. As of September 30, Chimera’s GAAP book value was $3.27 per share and the economic book value was $3.01 per share. Its taxable income for the third quarter was $0.13 per share and the analysis is said to not have an impact on prior or future dividend distributions.

Chimera shares are up 7.8% at $2.76 and the last $0.13 dividend would generate a yield of nearly 19%, but mortgage REIT yields can fluctuate wildly as taxable income and distributions come and go. The fairly new Market Vectors Mortgage REIT Income ETF (NYSE: MORT) is trading up only 0.3% at $22.72 on very thin volume. Chimera is the third largest weighting of that ETF at 6.91%, but that falls a distant third with American Capital Agency Corp. (NASDAQ: AGNC) at 13.17% and with Annaly Capital Management Inc. (NYSE: NLY) having nearly a 19.7% weighting of the entire ETF.

Annaly Capital Management, Inc. (NYSE: NLY) is often tied to Chimera because of its past and because of management teams and its shares are actually down 0.5% at $16.23. American Capital Agency Corp. (NASDAQ: AGNC) is also down 0.5% at $27.85 and Hatteras Financial Corp (NYSE: HTS) is down 1% at $25.61. All sport double-digit implied dividend yields if the payouts remain static.

This review brought on a rating update on Chimera by Credit Suisse with a reiterated “Outperform” rating and a $3.50 price target objective. Credit Suisse went on to note that Chimera trades at a 15% discount to book value and that its yield before the pop was 20.4%. The end result is that this would begin to ease investor concerns as shares had fallen from $2.80 down to almost $2.50 in recent days before the recovery.

Usually investors tend to run for cover when they see accounting changes. So far, that is not the case with Chimera as investors are taking the company at face value. If everything represented is as-is, then Chimera is trading under its implied book values and that may be cushion enough for investors. Stay tuned.

JON C. OGG

Filed under: Accounting, Dividend, Housing, REIT, Restatements, SEC, Shareholder Issues Tagged: AGNC, CIM, HTS, MORT, NLY

Dividend Analysis: Commercial REITs With Most Upside (GOV, OFC, EPR, DRE, REG, KIM, DLR, VNO, SPG, DDR)

Paul Ausick — Mon, 14 Nov 2011 19:43:55 +0000

There are a wide variety of REITs involved in non-residential property ownership and management and a few of these are our focus today. These include general office space, technology company office space, buildings leased to government, retail stores, mall buildings, commericial real estate, and movie complexes.

The companies included in today’s report include Government Properties Income Trust (NYSE: GOV), Corporate Office Properties Trust (NYSE: OFC), Entertainment Properties Trust (NYSE: EPR), Duke Realty Corp. (NYSE: DRE), Regency Centers Corp. (NYSE: REG), Kimco Realty Corp. (NYSE: KIM), Digital Realty Trust, Inc. (NYSE: DLR), Vornado Realty Trust (NYSE: VNO), Simon Property Group Inc. (NYSE: SPG), and DDR Corp. (NYSE: DDR).

All data from Yahoo! Finance, and current prices gathered shortly after noon today.

Government Properties Income Trust (NYSE: GOV) has a median target price of $23.00 from 6 brokers. Shares are trading today at $21.42, for an implied gain of $1.58, or 7.4%. Government Properties’ forward P/E is 10.71 and the company pays a dividend yield of 7.9%. The stock’s 52-week trading range is $19.68-$27.80, and at today’s price that’s about 9% above its 52-week low and 23% below the 52-week high.

Although the company’s implied upside is not among the highest in this group, its list-leading dividend yield and the space between its current price and its 52-week high recommend the stock. One possible downside remains the looming federal budget reduction, which could seriously weigh on the stock.

Corporate Office Properties Trust (NYSE: OFC) has a median target price of $25.50 from 10 brokers. Shares are trading today at $22.83, for an implied gain of $2.67, or 11.7%. Corporate Office’s forward P/E is 31.3 and the company pays a dividend yield of 7%. The stock’s 52-week trading range is $19.65-$36.90, and at today’s price that’s about 16% above its 52-week low and 38% below the 52-week high.

The high forward P/E ratio and the distance between the current price and the 52-week high should lower the stock’s implied gain of nearly 12%. The substantial dividend yield makes up for a lot of sins though.

Entertainment Properties Trust (NYSE: EPR) has a median target price of $46.00 from 7 brokers. Shares are trading today at $44.11, for an implied gain of $1.89, or 4.3%. Entertainment Properties’ forward P/E is 12.45 and the company pays a dividend yield of 6.2%. The stock’s 52-week trading range is $35.71-$50.44, and at today’s price that’s about 24% above its 52-week low and 13% below the 52-week high.

The company reported an EPS of $0.80 in its third quarter, the first positive report this year. That coupled with earnings growth in the current quarter have pushed the stock near its 52-week high, with the lowest implied gain of any of these companies. The dividend yield is certainly attractive, though.

Duke Realty Corp. (NYSE: DRE) has a median target price of $14.00 from 13 brokers. Shares are trading today at $11.50, for an implied gain of $2.50, or 21.7%. Duke’s forward P/E is 10.48 and the company pays a dividend yield of 5.8%. The stock’s 52-week trading range is $9.29-$15.63, and at today’s price that’s about 24% above its 52-week low and 26% below the 52-week high.

At today’s price, Duke’s dividend yield and its implied gain are very attractive, particularly when coupled with a moderate forward P/E and a reasonable amount of space to its 52-week high.

Filed under: Analyst Calls, Dividend, REIT, Value Investing Tagged: DDR, DLR, DRE, EPR, GOV, KIM, OFC, REG, SPG, VNO

Expected Upside in Lifestyle-Oriented REITs (HCN, SNH, UDR, ESS, CPT, RLJ, DRH, HHC, GGP)

Paul Ausick — Thu, 10 Nov 2011 19:28:00 +0000

The number and types of real estate investment trusts (REITs) is both large and varied, and, thus, better taken in smaller chunks. Our focus today hits those REITs that offer senior living centers, apartment buildings, and some mixed-use properties.

We’ve also culled some stocks from today’s list because either they don’t pay a dividend — or pay a low dividend for a REIT — or the company has already surpassed its current median target price. The companies we’ve selected are Health Care REIT, Inc. (NYSE: HCN), Senior Housing Properties Trust (NYSE: SNH), UDR, Inc. (NYSE: UDR), Essex Property Trust Inc. (NYSE: ESS), Camden Property Trust (NYSE: CPT), RLJ Lodging Trust (NYSE: RLJ), Diamondrock Hospitality Co. (NYSE: DRH), The Howard Hughes Corp. (NYSE: HHC), and General Growth Properties Inc. (NYSE: GGP).

Howard Hughes Corp. is not a REIT, but its operations are a near-identical fit with those of the trusts. It does not pay a dividend, but its upside potential is significant and we include it here as a “quasi-REIT.”

All data from Yahoo! Finance, and share prices were collected in the early afternoon today.

Health Care REIT, Inc. (NYSE: HCN) has a median target price of $53.00 from 13 brokers. Shares are trading today at $49.61, for an implied gain of $3.39, or 7%. HCN’s forward P/E is 13.11 and the company pays a dividend yield of 5.6%. The stock’s 52-week trading range is $41.03-$55.21, and at today’s price that’s about 21% above its 52-week low and 10% below the 52-week high.

HCN today completed a secondary offering of 12.65 million shares priced at $50/share. The company raised $632.5 million, which it plans to use for future investment, to pay down debt, and for general corporate purposes. Shares had been trading near the target price in advance of the offering. The attractive dividend yield makes the stock worth considering.

Senior Housing Properties Trust (NYSE: SNH) has a median target price of $24.00 from 7 brokers. Shares are trading today at $21.27, for an implied gain of $2.73, or 13%. SNH’s forward P/E is 7.31 and the company pays a dividend yield of 7%. The stock’s 52-week trading range is $19.09-$24.66, and at today’s price that’s about 11% above its 52-week low and 14% below the 52-week high.

Senior Housing Properties pays the highest dividend of any stock in this group and there is still headroom a nice implied gain. The 52-week high is barely above the target price, which could indicate a target price boost soon.

UDR, Inc. (NYSE: UDR) has a median target price of $27.00 from 18 brokers. Shares are trading today at $24.31, for an implied gain of $2.69, or 11%. UDR’s forward P/E is 17.12 and the company pays a dividend yield of 3.2%. The stock’s 52-week trading range is $20.04-$27.26, and at today’s price that’s about 21% above its 52-week low and 11% below the 52-week high.

UDR has been able to raise its rents due to its strategy of buying apartment properties in cities where job growth is better than average and higher priced housing is performing better.

Essex Property Trust Inc. (NYSE: ESS) has a median target price of $145.00 from 20 brokers. Shares are trading today at $135.09, for an implied gain of $9.91, or 7%. Essex’s forward P/E is 20.9 and the company pays a dividend yield of 3%. The stock’s 52-week trading range is $105.60-$148.44, and at today’s price that’s about 28% above its 52-week low and 9% below the 52-week high.

Essex’s target price is lower than its 52-week high and its forward P/E is higher than average as well, indicating that the stock could be priced at very near its full value. The 7% implied gain is further evidence that expectations for growth are not all that rosy.

Filed under: REIT Tagged: CPT, DRH, ESS, GGP, HCN, HHC, RLJ, SNH, UDR

Mortgage REITs Trying To Recapture Lost Ground (NLY, AGNC, HTS, CIM, IVR, MORT)

Administrator — Thu, 06 Oct 2011 13:55:03 +0000

The mortgage REIT sector is trying to make a comeback after many lost 10% or more of their value from last week to the start of this week as many issues are hanging over it. A lack of refinancings, how ‘operation twist’ affects the yield curve, a poor housing market, and the fear of the future tax status are just some of the overhanging issues here. The good news, as Bank of America Merrill Lynch noted in its key sector downgrade one month ago, is that the tax issue is not likely to come to a head in the immediate future. The bad news is that the last week has not been kind to a sector where investors reach for the highest dividend yields possible.

It was just over one-month ago that we noted how BofA/Merrill Lynch downgraded 6 of the 12 major mortgage REIT stocks to Neutral from Buy. The big call at the time was that the tax overhang might make these trade closer to book value. We are seeing some small indicated gains right around the open this morning after many have continued to bounce. We have to refer to an “implied dividend” rather than a true dividend because the payouts usually depend mostly on the earnings from quarter to quarter and earnings in mortgage-REITs are difficult to predict.

Annaly Capital Management, Inc. (NYSE: NLY) is trading up by 0.5% after closing at $15.68 and after breaking under $15.00 this week. Still, the 52-week range is $14.05 to $18.79. The latest implied dividend yield: 15.2%.

American Capital Agency Corp. (NASDAQ: AGNC) is up 0.3% after a $26.38 close but shares were down close to $23.00 at the lows this week after having been above $27.00 last week. The 52-week range is $22.03 to $30.76 and the implied dividend yield is now north of 20%.

Hatteras Financial Corp (NYSE: HTS) is flat at $23.90 and shares broke under $23.00 earlier this week during the peak of the panic. This stock was close to $25.50 last week and the 52-week range is $22.33 to $31.98. The implied dividend yield is almost 17%.

Chimera Investment Corporation (NYSE: CIM), which we call the vulture mortgage REIT, is up 0.4% at $2.58 and the 52-week range is $2.38 to $4.36. The implied dividend on last look was close to 20%.

Invesco Mortgage Capital Inc. (NYSE: IVR) is up over 1% in early trading at $14.11, and this went well under $13.00 early on Tuesday and the 52-week range is $12.55 to $24.07. The implied dividend is now close to 23%.

The fairly new Market Vectors Mortgage REIT Income ETF (NYSE: MORT) is still down around $21.40 and shares briefly broke under $20.00 this week. We only have one real dividend payment so far, but the implied dividend on this ETF is close to 13%. The post-launch trading range is $19.83 (yesterday) to $26.50 and that should show how the whole sector has been slammed so hard.

Again, these dividend yields are simply “implied” because they can rise and fall and picking the trend is hard to identify from REIT to REIT.

JON C. OGG

Filed under: Dividend, REIT Tagged: AGNC, CIM, HTS, IVR, MORT, NLY

Are High-Yield Mortgage Dividend REITs Doomed? (NLY, AGNC, HTS, CIM, IVR, RWT, PMT, DX, ARI, STWD, CLNY, CXS, MORT)

Administrator — Sat, 03 Sep 2011 13:30:43 +0000

No money was injured while filming

There was a development this week in the land of the high-yielding mortgage REITs. Wealthy and income oriented investors have been flocking to these for years because of their high dividends which are often up in the double digits as these entities are forced to pay out almost all of their income as a dividend to be taxed at the investor level. With low taxes on dividends and with a promise from Ben Bernanke to keep rates exceptionally low out to mid-2013, the path was set for clear skies ahead. Until this last week…

On Friday came a sector downgrade from Bank of America’s Merrill Lynch. This might have been considered a valuation call or that the dividends were unsustainable if you just looked at the summary. It is worse.

Mortgage REITs underperformed the market this week because of the possible impact of changes in how the Securities Exchange Commission interprets mortgage REITs and their exemption from the Investment Company Act. The only potential saving grace is this: “The SEC has not made formal recommendations, so any specific outcome is unclear at this time.”

BofA/Merrill Lynch downgraded 6 of the 12 mortgage REIT stocks in its coverage universe to Neutral from Buy, and the research calls with the implied dividends are below:

Annaly Capital Management, Inc. (NYSE: NLY) was downgraded from Buy to Neutral; indicated yield is 15%. American Capital Agency Corp. (NASDAQ: AGNC) was downgraded from Buy to Neutral; indicated yield is 20.5%. Hatteras Financial Corp (NYSE: HTS) was downgraded from Buy to Neutral; indicated yield is 15.3%. Chimera Investment Corporation (NYSE: CIM) was downgraded from Buy to Neutral; indicated yield is 18%. Invesco Mortgage Capital Inc. (NYSE: IVR) was downgraded from Buy to Neutral; indicated yield is 23%.

Redwood Trust Inc. (NYSE: RWT) was maintained as Underperform; indicated yield is 8.3%.

PennyMac Mortgage Investment Trust (NYSE: PMT) was maintained Buy; indicated yield is 12.1%. Dynex Capital Inc. (NYSE: DX) was downgraded from Buy to Neutral; indicated yield is almost 13%. Apollo Commercial Real Estate Finance, Inc. (NYSE: ARI) maintained Buy; indicated yield is 11.1%. Starwood Property Trust, Inc. (NYSE: STWD) maintained Buy; indicated yield is 10%. Colony Financial, Inc. (NYSE: CLNY) maintained Buy; indicated yield is almost 8.5%. CreXus Investment Corporation (NYSE: CXS) maintained Buy; indicated yield is about 11%.

The newly launched Market Vectors Mortgage REIT Income ETF (NYSE: MORT) fell almost 2% Friday to $23.26 after having been around $24.50 on Wednesday.

The Bloomberg Mortgage REIT index fell 1.7% on the week. BofA/Merrill Lynch noted another form of caution even if the SEC action dies out, “The weak employment markets are consistent with our view that many mortgage borrowers will continue to struggle to qualify for refinances barring additional government intervention.”

BofA’s belief is that now these shares will be tied to fair value movements in the underlying asset classes. The net effect of the SEC consideration and speculation that the government could intervene in mortgage markets only add to the issue. As a result, Merrill Lynch’s call is that some of these stocks may reflect a discount to book value now.

Here is where this gets very interesting. You know now that BofA has had enough with its mortgage losses that it is exiting the sector just about entirely. Bye-bye Countrywide. The problem is that the bank is under fire from more states, pensions, and agencies for misrepresentation and losses tied to mortgages. It is endless. Our take is that Merrill Lynch might know even a bit more here about what could happen to some of the mortgage-backed securities out there that are being held by these REITs. That sounds a bit like a conspiracy theory, admittedly, but think about it for a bit…

JON C. OGG

Filed under: Analyst Calls, Dividend, Housing, REIT, Research, Shareholder Issues Tagged: AGNC, ARI, CIM, CLNY, CXS, DX, HTS, IVR, MORT, NLY, PMT, RWT, STWD

New Mortgage REIT ETF Highlights Double-Digit Dividend Yields (MORT, NLY, AGNC, CIM, MFA, HTS)

Administrator — Wed, 17 Aug 2011 20:09:48 +0000

Investors now have yet one more option to choose from when it comes to investing in mortgage REITs. Van Eck Global has now launched the Market Vectors Mortgage REIT Income ETF (NYSE: MORT) as a pure-play ETF giving exposure to mortgage REITs. Now that Treasury yields are nothing and investors are having to chase yields, the mortgage REIT sector’s high yields are still keeping investors interested.

The new ETF tracks the performance of the Market Vectors Global Mortgage REITs Index. The underlying index has 25 constituents and is a market cap-weighted index where the companies have to derive at least half of their revenues from mortgage REITs. The allowance can include those which purchase or service commercial or residential mortgage loans or mortgage-related securities. Van Eck noted, “Unlike other indexes used in mortgage REIT-focused ETFs, the Index does not include mortgage finance companies or savings associations.”

The weighting of the top-5 members in the index is as follows (as of July 31, 2011): Annaly Capital Management, Inc. (NYSE: NLY) at 19.73%; American Capital Agency Corp. (NASDAQ: AGNC) at 11.46%; Chimera Investment Corporation (NYSE: CIM) at 7.27%; MFA Financial, Inc. (NYSE: MFA) at 6.07%; and Hatteras Financial Corporation (NYSE: HTS) at 5.04%. The top five of the twenty-five constituents account for just over 49.5% of the entire weighting.

This new ETF has a gross expense ratio of 0.54% and a net expense ratio of 0.40%, with expenses capped at 0.40% until May 1, 2013.

What makes this interesting is that all five of the top constituents carry a yield of well above 10% based on the last dividend payments. These underlying entities are required to distribute 90% of their income as dividends to investors, so the returns can fluctuate wildly.

With a promise from Ben Bernanke to keep rates at near-zero for the next two years, the spread between short-term borrowings and leveraging up for mortgage yields is likely to keep the environment positive for entities such as these. The problem is when the short-term borrowing rates go back up. When… If…

JON C. OGG

Filed under: Dividend, ETF, Housing, REIT Tagged: AGNC, CIM, HTS, MFA, MORT, NLY

New Industrial Warehouse REIT IPO on the Way

Administrator — Tue, 16 Aug 2011 18:25:21 +0000

O’Donnell Strategic Industrial REIT, Inc. is going to be the next public warehouse REIT. The company has filed its S-11 and the SEC declared it effective as of August 15, 2011.

The public offering is set to be for up to $1.1 billion in common stock, including shares to be sold pursuant to its distribution reinvestment plan.

As far as a use of proceeds, the REIT intends to use the net proceeds from its offering to invest primarily in what it calls “high-quality, income-producing industrial warehouse properties that are net leased to credit worthy tenants and located in and around strategic geographic distribution hubs.”

The shares are being priced at $10.00 per share and will be made available through SC Distributors, LLC, the affiliated dealer manager to the offering and a FINRA member.

This sounds a lot like ProLogis (NYSE: PLD), except smaller. ProLogis has a $13.2 billion market cap and at $28.80, its 52-week range is $22.97 to $37.46.

JON C. OGG

Filed under: IPOs, REIT Tagged: PLD